Landlords face rate dilemma as rents plummet

LANDLORDS are facing a tougher time as rents have dipped and the cost of mortgages has risen.

The average monthly rent in England and Wales was £707 in February, down 1.6 pc from its peak of £719 in October 2011, according to LSL Property Services, owner of letting agents Your Move and Reeds Rains.

Meanwhile, big players such as Santander and Leeds BS have increased their buy- to- let mortgage rates as the eurozone crisis has pushed up the cost of borrowing.

Leeds BS raised its two-year, fixed-rate mortgage from 3.99 pc to 4.35 pc, increasing interestonly payments on a £150,000 mortgage from £499 to £544.

However, experts say there are still good investment opportunities for landlords because rents are expected to stay high and house prices stagnant for the next couple of years.

Many believe the dip in rents was due to tenants buying their first home before the stamp duty holiday ended in March.

This meant there was less demand for rental properties, so landlords had to cut prices.

Rents are still 3.5 pc higher than a year ago, and David Newnes at LSL expects them to start rising again soon.

He says: ‘There are already indications that mortgage lending is falling back, and that mortgage rates are beginning to climb, which will limit the number of prospective homebuyers leaving the rental sector.

‘ Given the growing number of households, the pressure will remain on the private rented sector.’

The sluggish housing market may also provide some good buying opportunities for landlords, although they will need a deposit of 40 pc of the property’s value to get the cheapest mortgage rates. Government predictions published in the Budget reveal house prices are expected to fall 0.7 pc in the 12 months to April and fall a further 0.6 pc in 2012-13.

One of the cheapest buy-to-let mortgages is a two-year tracker rate with Nottingham BS at just 3.39 pc. It has a £1,999 fee and monthly payments would be £ 742 on a £ 150,000 loan. You need 40 pc deposit or equity.

If you prefer the certainty of a fixed rate, Nottingham BS has a two-year fix with the same fee at 3.79 pc, giving payments of £774.

However, Nottingham BS will not lend on flats or maisonettes.

Woolwich, which will lend on these properties, has a two-year fixed rate at 3.88 pc for those with 40 pc deposit. It comes with a hefty £3,999 fee and monthly payments would be £485.