Future demand for buy to let mortgages could fall

According to a recent report the demand for buy to let mortgages could fall in the future, as a slow down in the rise of property values hits, lumbering landlords with higher mortgage repayments but lower house value inflation and rental income.

However, reports have also indicated that at present landlords are doing very well, and in the past year enjoyed returns of around 13%. Reports indicate that landlords saw the property vales rise on average by around 7.3% and saw rental returns of around 5.5% of the property value.

The figures come from a report issued by Birmingham Midshires. The report indicated that although the 13% property value rise seen was up from the previous twelve months of 11.9% rental payments dropped from 5.7% in the previous twelve months to 5.5% last year. Birmingham Midshires warned that the interest rate rises had led to mortgage repayments being higher than rental payments, and that this could have a dampening effect on the popularity and take up of buy to let mortgages.

One economist from the building society stated: ‘While house price growth in the sector is expected to be more subdued near-term, reflecting the impact of higher interest rates, the potential for further increases in rents should encourage long-term investors. There also remains the potential for healthy long-term capital appreciation in the buy-to-let sector, particularly given the backdrop of more households being formed each year than there are new properties being built.’

Along with homeowners buy to let landlords are likely to be hit hard by the interest rate rises that have been applied by the Bank of England over the past year, as it means higher repayments on the mortgage without higher rental income.

Tom Smith
1st August 2007

Tags: increase, value, interest, landlords, payments, property, let