Buy To Let Updated:
Renters have long been feeling the pinch, with rising monthly payments taking a significant proportion of their monthly income – often far more than mortgage holders have to contend with. But, the tide could be turning, as research from LSL Property Services has revealed that wages will actually outpace rent rises in the year ahead.
Over the course of 2014, rents are expected to rise by 1.7% while average earnings should post an increase of 2.2%, reversing the previous trend of rents overtaking wages – last year, for example, rents rose by 1.6% while wages grew by just 1.1%, and in 2012 the figures were even worse by standing at 3.2% and 1.3% respectively. This new trend will therefore be welcomed by those that were wondering when things would balance out, ensuring rents don't become unaffordable.
This "historically significant" crossover is predicted to take place in July when both rent rises and wage increases are expected to be at 1.6%, but it could happen as early as this month if wage growth picks up beyond forecasted levels. When it happens it'll be the first time that earnings have outpaced rent rises in four years – such a trend hasn't been recorded since April 2010 – while in even better news for renters, household disposable income is expected to rise for the first full year since 2009.
It's definitely encouraging news for tenants, and although monthly rents are anticipated to peak at 38.3% of average gross earnings, this ratio is expected to steadily fall until at least 2016 for much-improved affordability. If trends continue, it means household finances in the private rented sector will improve significantly for the first time in five years.
But, it's not all about the tenants. There's some good news for landlords too, as many are choosing to benefit from the run of low buy-to-let (BTL) mortgage rates to fix their repayments and continue to profit.
Figures from Mortgages for Business have revealed that remortgaging accounted for a significant proportion of all landlords' mortgage activity in the first three months of the year, a trend that has continued since the second quarter of 2013. In fact, 65% of standard BTL transactions were remortgages rather than new purchases, and the figure is even higher for those with more complex portfolios (landlords who own entire blocks of flats, for example).
This is arguably because many landlords are realising that the run of low rates can't last forever, and so are taking advantage of them while they still can. The increased availability of finance and competition among lenders adds to the possibility of finding a better deal – there are now far more BTL mortgages available than there have been for years, with Moneyfacts' figures revealing that the number of BTL products reached a total of 608 in March, the highest figure seen since April 2008.
This would indicate that availability of BTL mortgage finance is on an upwards trajectory in line with a recovering mortgage market overall, and landlords are deciding to act on that and fix their repayments before a rate rise hits. Given that gross yields on standard BTL properties are also improving – reaching 6.4% this month, reversing the former trend of lower yields and rising sharply from the 5.9% recorded in the previous quarter – it's a great time to take advantage of better mortgage deals and higher revenues to secure a stronger return. Why not see what you can find?
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