In the last few years the home rental market has been flooded as would be sellers started renting their homes instead. Indeed, during the last 12 months, in London the number of homes available for rent has increased by 67 per cent and demand for rental properties has increased by 20 per cent. This has resulted in a 5 per cent drop in the average rental price.
However, the weakness in the rental yields has not been across all the rental price ranges. Demand for the most affordable rental properties, those under 500 pounds a month, have remained strong. It is the higher priced rental properties, especially those aimed at corporate tenants that have been falling quickest.
However, investors with buy-to-let mortgages will be pleased to know that there are signs that the worst may be behind them. Last month rental prices fell by 0.4 per cent which is the lowest monthly fall for 6 months. Estate agents say this in part results from landlords being more realistic in their prices and some accidental landlords returning their properties to the for sale market.
This means that more and more bargain hunting rental clients are finding landlords are becoming resistant to further drops in prices. They are also supported in this stance as in the south east, there is an undersupply of properties at the cheaper end of the market.
With so many homes being diverted from the sale market to the rental market, this leads one to suspect that many "accidental" landlords are still financing their property on an ordinary residential mortgage. Mortgage providers insist that if the property is to be rented, the owners must transfer their mortgage to a buy-to-let mortgage. If they fail to do so the lender can terminate the residential mortgage and commence repossession proceedings.
This in turn can have dire consequences not only for the owner but also the tenants. They can be evicted by the lender at just 14 days notice.
And it is not easy to get a buy-to-let mortgage these days. Repossessions have been highest within the buy-to-let market and many lenders have reacted by withdrawing entirely form that market.
If you are a landlord caught in the trap of financing your property on a residential mortgage, you should take advice immediately from a mortgage broker. The danger is that if you contact your existing lender and they have withdrawn from the market, they may react by simply calling in your mortgage. Then, if you have nowhere to get refinance, you're up a gum tree.
But to get anywhere with a buy-to-let mortgage application, you will need at least 25 per cent equity in your property. Any less and you have a major problem. You may consider that your only option will be to keep quiet with your lender and get your house on the market at the earliest opportunity. In the mean time you must keep up your mortgage repayments.
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