Hot Spot Strategies In The Multi Million BTL Mortgage Boom

BTL mortgage boom

Good news for investors continues. This time we have a further confidence boost from Paragon and new reports which indicate why a two bedroom house in a market town is currently the best investor buy.

This is excellent for Axis clients, as we have just launched the perfect portfolio for the situation - see how we are always ahead of trend! Read on for the full story.

Paragon "not short" of friends in finance

Confidence in the Buy To Let (BTL) market is boosted further as Paragon looks to expand business interests which could add to its core area of BTL mortgages and loans. The lender to landlords only returned to the market in September 2010 and has now expressed an interest in snapping up loan books from distressed rivals.

Paragon, which relaunched in a recession without Government assistance, is reported to be considering divisions of foreign banks which have been put up for sale by Lloyds. The company is said to have a cash pile of £148 million and there are also indications Paragon may partner with another cash rich company.

Chief executive, Nigel Terrington, explains: "We've had numerous approaches from private equity firms, hedge funds and other financial institutions who have said: ‘You're experienced in risk management and loan servicing.' I don't think we would be short of friends to finance a deal."

Multi-million profits reported

Solihull-based Paragon has definitely made a notable comeback. It re-launched into the BTL market with £200 million backing from Macquarie and reported pre-tax profits of £72 million in the same month (September 2010). This is up from £54 million the previous year.

The ongoing BTL boost from Paragon is an excellent indicator of the increasing strength of the letting market, particularly in contrast to the residential housing market which continues to slow. It would appear that the harder it becomes for prospective residential homebuyers to obtain finance, the more readily BTL mortgages become available.

New lenders in the marketplace also include Aldermore and Precise Mortgages; and Abbey for Intermediaries has also revealed it is looking at entering the BTL market in 2012.

75% Loan To Value and longer leases for landlords

This increasing availability of finance with, typically, an up to 75% Loan To Value (LTV), is the ideal accompaniment to the ongoing rising rents and tenant demand. Not only has tenant demand risen 44% in 2010, but existing tenants are also reported to be remaining in their properties for longer periods. Twelve month leases are now more popular than six month tenancies and more tenants are renewing at the end of the term.

Indeed, the Association of Residential Lettings Agents (ARLA) reports levels of tenant demand at their highest in a decade and more than double those experienced at the peak of the property boom in 2007. Ian Potter, ARLA operations director, states: "The market has bounced back in a way that no one could have predicted to levels of demand that have not been seen since the last century."

Market towns hot spots for investors

One and two bedroom flats remain popular with renters, along with a rise in the desirability of two bedroom houses. Letting specialist, Leaders, reports that two bedroom properties are being rented within days of coming to market. Paul Weller, managing director of Leaders, states: "There is virtually no risk of a well-presented property remaining empty."

We, at Axis, are also seeing our portfolios of two bed properties selling almost as soon as they are released.

Market towns, in particular, are currently said to be offering better growth prospects than other areas in their locality. New research from Lloyds TSB indicates the popularity of market town properties, with values 14% higher than elsewhere in the country.

Martin Ellis from Lloyds TSB comments: "Homes in market towns command a significant premium over their neighbouring towns with the quality of life benefits often associated with living in such locations."

The perfect portfolio

So how can you, the investor, benefit from the latest BTL good news?

We currently have a portfolio of very low cost, two bedroom, new build, Barratt houses in a popular development in the market town of Grantham. What's more, we have negotiated an excellent 25% Below Market Value (BMV) investor price of £74,995, with a modest deposit of just £18,750. This investor price is actually 37% below the higher value we have seen for the same style of property, in the same area. Plus, up to 75% mortgage finance is available on this deal.

To find out more about this deal and others, or to simply have a no obligation chat about your portfolio requirements and the excellent strategies we offer, call our UK portfolio manager, Russell Bonner, on the UK hotline 0333 0034, or email him at russell@axiscontact.com

Live with Abundance

Rod Thomas sig

Rod Thomas FCA

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1 responses to 'Hot Spot Strategies In The Multi Million BTL Mortgage Boom'

Simon Paul

Added 17-Jan-2011 09:51

I am looking to buy no money down properties, are the barrat properties able to be 25% gift deposited to enable this ?

Rod Thomas

Thanks for your enquiry. Axis no longer engages in gifted deposits and "no money down" deals. We require the payment of a deposit. There are a number of reasons for this:

1. The intention of the lenders is that this 'gifted deposit' situation should NOT happen, and they have worked hard on changing and updating the rules to ensure that it can't. There is a dwindling band of sellers who are still trying to find ways around the new rules. However, some brokers have been jailed and taking part in this practice is increasingly likely to result in the deal not happening.

2. Taking a full 'no money down' deal results in huge borrowing and most probably nothing better than break even on the cashflow. This is a big risk for clients when interest rates rise and it's easy to come unstuck and end up losing cash every month. Typically the clients who did a ' no money down' deal are the least able to stand this kind of adverse monthly cashflow.

3. The NMD process means that the valuation needs to be at market value, not at the discounted price when buying at a 'net' price. Increasingly there are valuation problems which means that the deal falls apart even if the 'structure' appears robust.

We understand completely the benefit of leverage and the challenges facing investors who have limited cash. But the big issue is making safe,prudent investments that have GOOD but not unsupportable leverage.

We would love to work with you and can assure you that our deals are genuinely well below market value, are structured for maximum leverage within the 'rules', have had extensive due diligence and are fully packaged for minimal involvement from clients.
Rod Thomas