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Buy-to-let landlords reject "risky" LTVs

5th May 2005 | back to article listings BACK    print this article PRINT

Despite evidence of continued confidence in the market, buy-to-let landlords in the UK are reluctant to mortgage higher percentages of the value of their properties, even though the opportunity to do so is greater than ever.

A number of lenders are now offering mortgages with higher loan-to-value (LTV) rates than in the past, but according to new reports the majority of landlords are choosing not to take advantage of the opportunity. Mortgage Trust's April 2005 Buy-to-Let Intermediary Forecast has found that some two-thirds of all landlords are not looking to borrow more than 85 per cent of the total value of a property, therefore finding little practical use for the higher LTVs that are coming into availability.

Perhaps most significantly, the vast majority, some 94 per cent, stated that they are not recommending the new LTVs, suggesting that uptake will remain low for the foreseeable future.

"Although increased LTV limits may have secured a lot of publicity, these increases, in some cases way beyond 85 per cent, are aiming at a very thin market," comments Nicola Severn, marketing manager at Mortgage Trust. "Buy-to-let landlords operating in today's market are cautious investors who believe in responsible borrowing. They have little desire to mortgage themselves above modest levels," she added.

If this is accurate, it might be fair to assume that landlords with Self Invested Personal Pensions (SIPP) might not be willing to take advantage of changes to legislation facilitating investment in residential property. As of April 6th 2006 borrowers will be able to use a SIPP fund to borrow up to 50 per cent of the value of its assets, and once inside the SIPP, any rental income from a property is completely tax-free.

Judging from the reluctance of landlords to capitalise on higher LTVs though, they may not find it necessary to use a SIPP to fund property purchase in the first place. That said, confidence in buy-to-let remains strong and a large proportion of landlords are hoping to expand their portfolios this year, which could mean a shift in attitudes regarding investment in the future.

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