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BTL mortgage drought hits UK expats

A growing number of UK homeowners working overseas are finding themselves grappling with skyrocketing mortgage rates when renting out their properties, the Financial Times reports.

The newspaper says that these individuals are often required by lenders to switch from standard residential loans to ‘consumer buy-to-let mortgages’ – usually at higher interest rates.

In recent months, these rates have experienced a sharp increase, fuelled by the expectation that the Bank of England will push up rates to tackle inflation.

The situation is further complicated by the falling number of products in the expat mortgage sector.

Banks discontinued expat mortgages in early 2020

The FT says that many major banks discontinued expat mortgages in early 2020, as the UK’s exit from the EU imposed fresh regulatory challenges for British banks providing financial services throughout the bloc.

When expat borrowers reach the end of their fixed-rate agreements and seek refinancing, they may encounter interest rates as steep as 8% or 9%, according to lenders and mortgage brokers.

Some banks have even started rejecting expat remortgage applications or requests for larger mortgages.

And while some banks continue offering mortgage transfers – where borrowers receive a new rate offer from the same lender – the rates are significantly higher than before.

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BTL mortgage market for non-UK residents

Lorraine McLean, head of BTL mortgages at Skipton International, which is based in Guernsey, said the bank had seen strong demand from expats who had been offered ‘a ludicrous rate’ when renewing – or nothing at all.

The bank said it had seen a 40% rise in completions in the first quarter of this year, compared with last year.

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UK-based lenders lost the so-called ‘passporting’ rights

The FT article says that when the UK left the single market for financial services, UK-based lenders lost the ‘passporting’ rights that saw them to do business in any EU country with minimal extra authorisation.

One director at a major lender told the newspaper that before Brexit, lenders in the UK lending to EU or UK citizens across the EU had to show they were following lending rules in the UK.

Now they must follow the regulations in the borrower’s country of residence – and lenders don’t have the appetite or capacity to do this.

The lender was offering transfers on expat buy-to-let mortgages, the director said, but no longer offered loans to new expat customers and did not allow expanded mortgage borrowing for current customers.

Source: Property 118

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The buy-to-let locations landlords can invest in for as little as £25,000

Landlords enjoyed record-breaking rental growth last year, boosting yields and putting the property market on the radar of investors looking to diversify their portfolio. But investing in the buy-to-let sector has become increasingly fraught with regulatory pitfalls and higher borrowing costs thanks to inflated interest rates.

The sector has been losing more investors than it has attracted since 2016, when a three percentage point stamp duty surcharge was introduced for additional properties. The tapering of mortgage interest tax relief on buy-to-lets followed soon afterwards.

For those willing to navigate the complex rules, buy-to-let is a familiar option which if done properly gives investors two sets of returns; rental income and capital growth of their underlying asset.

Where to start? Here, we take a look at the best places to invest with a cash budget of £25,000, enough to cover a 25pc deposit and stamp duty, using data from Hamptons estate agency.

In the three locations below, an initial £25,000 investment would produce an average gross yield of more than 9pc – significantly more than the target 4pc rate of income from a typical pension pot in drawdown.

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Where £25k will earn you the highest returns

Hartlepool and County Durham

The highest yielding location for landlords with £25,000 to spend in England and Wales is Hartlepool in north east England. Yields are generally highest where house prices are lowest. Cheaper property prices and high tenant demand in the North have boosted rental returns, making it a popular region with investors.

The port of Hartlepool is a rental hotspot for modest budgets, with an average gross yield of 9.7pc. A typical flat in the area costs £68,130, meaning landlords will need £17,030 for a 25pc deposit and a further £2,044 to pay stamp duty. They can expect an average yield of 11pc on their investment, one of the highest on this property type in the country.

Recent house price growth means an average terraced house in Hartlepool no longer falls within a £25,000 investment, but is still within reach for those who can afford to stretch their budget a little further. A typical terraced house in the area costs £95,100, requiring a £23,780 deposit and £2,853 for the stamp duty bill. It equals an upfront investment of £26,630 and would yield an average gross yield of 9.2pc.

Paul Gough of We Love Renters, a property management company in Hartlepool, said there were three main tenant demographics that landlords had targeted in the town in recent years.

Two or three-bedroom houses for families were very popular among investors, said Mr Gough, who owns a portfolio of properties in the area.

He added: “Old Victorian houses which can be developed into one-bed apartments have also become increasingly popular, as they are perfect for single male tenants. Short-term lets for contractors have also taken off in a big way.

“There has been a lot of government money directed towards the wider Teesside region over the past year and there are thousands of contractors in the area.

“These workers often live elsewhere in the country but are staying in Hartlepool for weeks at a time. They don’t want to be paying hotel prices, so short-term bedsits for anywhere from a few nights to six months are in high demand.”

Investors can expect rental income before expenses of £7,494 a year from an average flat in the town and £8,794 from a terraced house, according to Hamptons.

Next door in County Durham investors can find the second highest yields for a budget of £25,000 in the country. Landlords with a modest investment can achieve an average gross yield of 9.2pc, or higher if they invest in a cheaper property type.

The average flat here costs £76,020 according to Hamptons, more expensive than nearby Hartlepool. Landlords would need a combined £21,290 to cover a deposit and stamp duty and could expect a typical double-digit yield of 10.3pc.

A terraced house in County Durham is also out of reach to a landlord with £25,000, although possible if they have a few thousands pounds more to invest.

A property of this size costs an average of £100,880 in the area, requiring a £25,220 deposit and £3,026 stamp duty bill – £28,250 in total. Landlords renting out a typical house here can expect an average yield of 8.7pc.

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Blaenau Gwent

The borough of Blaenau Gwent has the highest rental yield in Wales for investors with a £25,000 budget, at an average gross rate of 9.1pc.

A £25,000 budget would be enough to cover the £17,660 deposit on an average flat in the area, plus £2,119 in stamp duty. Landlords can expect an average yield of 10.3pc on a flat and £7,239 in annual rental income, before any costs are deducted.

Investors would need more than 60pc more to invest in a terraced house in Blaenau Gwent, where property values have risen in recent years. At a typical price of £117,060, the upfront cost of investing in a terraced house is £32,780 to cover a 25pc deposit and stamp duty bill, according to Hamptons.

Landlords can expect higher rental income from a terraced house, an average of £10,088 a year – but yields will be lower because of the bigger initial investment, at an average of 8.6pc.

By Rachel Mortimer


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Buy-to-let mortgage repayments up 32% in the last year

The cost of maintaining a monthly buy-to-let mortgage interest payment has climbed by 75.7% in the last year, with those making a full mortgage repayment each month seeing an increase of 31.6%, according to new research from Octane Capital.

Octane Capital analysed the current cost of the average buy-to-let mortgage and how this monthly repayment has increased in the last year as interest rates have climbed.

The research shows that currently, the average buy-to-let investor is borrowing £217,364 after placing a 25% deposit on the average UK property price of £289,819.

With a current average buy-to-let mortgage rate of 5.32%, this would see the average investor pay back £1,312 when making a full monthly repayment.

The average mortgage rate has increased by 2.12% in the last year alone, meaning that the average monthly cost of a full mortgage repayment has increased by 31.6%, adding £315 to the cost of buy-to-let borrowing.

However, many buy-to-let investors will opt to simply maintain the mortgage secured on an investment property by way of monthly interest-only repayment

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The figures from Octane Capital show that in the current market, the average interest-only monthly repayment has climbed to £964 per month, an annual increase of 75.7%, or £415 per month.

Despite this increased cost, investor appetites for buy-to-let investment remains strong and previous research by Octane Capital shows that the total value of loans issued to buy-to-let investors has climbed by 12% over the last year, one of only two sub sectors to see positive movement two years in a row.

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CEO of Octane Capital, Jonathan Samuels, commented: “It’s not just residential buyers that will have shuddered at the news of an eleventh consecutive interest rate hike last week, with buy-to-let investors also seeing the cost of borrowing climb substantially.

“These increased mortgage costs will further reduce a profit margin that has already been dented due to numerous government legislative changes in recent years.

“Despite this, we’ve actually seen an increase in the total value of buy-to-let loans issued in the last year which suggests that, despite all that’s been thrown at them, the nation’s landlords are still largely undeterred and the buy-to-let sector itself remains a lucrative one for those looking to invest in the right areas and with the right financing in place.”


Source: Property Reporter

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London rental properties letting within minutes

One lettings agency in London says that tenant demand is so great in the capital for rental properties that many homes are being let within minutes of becoming available.

Benham and Reeves point to demand created by the return of professionals and international students, along with the growing shortage of available properties to rent, for creating a ‘challenging market’.

Tenant enquiry levels have continued to increase over the summer, across the firm’s 19 branches.

They say this is the ‘Most competitive London rental market that we have ever known’.

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Many branches have had almost no stock
In addition, tenants are finding that many branches have had almost no stock available, at best one or two apartments available to rent.

In a market update, the agent says: “Many properties are renting within hours – and some within minutes – as applicants immediately make an enquiry as soon as a property goes live on our website.

“This is swiftly followed by a full asking rent offer and once agreed, a holding deposit – so anxious are they to secure a property.

“This of course is great news for buy-to-let investors who, in many parts of the capital, are seeing their rental properties let immediately with voids at an absolute minimum. Sometimes just a day or two.”

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London is now a ‘landlord’s market’
The update also makes clear that the imbalance between supply and demand means that London is now a ‘landlord’s market’ with property investors expanding their property portfolios.

And rents are rising to pre-pandemic levels – some are now 10% higher.

Investors from overseas are also finding that the weakness of sterling makes London property considerably more affordable, while the shortage of rental properties means demand is the highest that the agent ‘has ever seen’.

Professionals returning to live and work in London, along with international students, are fuelling demand.

In some areas, including the City and east London, around 85% of applicants have been international students.

With the rental market so competitive, tenancy renewals remain at an all-time high – often more than 90% of existing tenants are renewing because they see there is a limited choice of properties available.

Source: Property 118

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Expat buy-to-let enquiries surge following stamp duty changes

One week after the Chancellor announced a stamp duty holiday on the purchase of property in England, Skipton International has reported a sharp increase in its buy-to-let mortgage enquiries.

The buy-to-let lender says UK expatriates and foreign nationals have been quick to register their interest in investing in UK property to let, with the bank experiencing enquiries at double the value of usual business.

In the seven days following that announcement that stamp duty would be waived on all English properties up to the value of £500,000, Skipton has reported a 61% rise in usage of its online mortgage calculator for UK buy-to-let mortgages estimates.

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Jim Coupe, managing director of Skipton International, said: “This initial response to the new stamp duty measures is very encouraging and demonstrates that the changes are driving more interest to the UK property market. We have always seen the UK buy-to-let market as an extremely important area of our business and are anticipating that many of these enquiries will convert to successful mortgage applications in the coming months. As a responsible lender we have to be mindful of prevailing circumstances but will be doing whatever we can to assist buyers in their search for long term investment property.

“Now could be a good time for overseas purchasers to consider investing in UK property, with the stamp duty holiday due to last until 31 March 2021, at which time a proposed additional 2% stamp duty land tax charge for foreign residents will come into effect. This window of opportunity could offer substantial savings with those buying a property priced at £500,000 generating savings of up to £25,000.”


Source: Financial Reporter