Should landlords remortgage to expand their portfolio?

POSTED: 1st September 2014
IN: Personal Guides

House prices are currently on the rise and are set to continue increasing in the near future, albeit at a slower rate, if recent research is to be believed.

House prices are currently on the rise and are set to continue increasing in the near future, albeit at a slower rate, if recent research is to be believed.undefined

Growth in the market is good news for homeowners, including buy-to-let mortgage holders letting out properties on the private rental market.

Landlords who have benefited from particularly strong growth in recent times will be asking themselves if now is a good time to remortgage a rental property, thereby freeing up some equity to expand their portfolio.

If you are currently considering this option, make sure you first give some thought to the various factors involved.

Is it the right time to remortgage?

The answer to this question will depend on personal circumstances. When deciding whether to remortgage, you should always consider the unique aspects of your own situation before coming to a conclusion.

For instance, if you are currently on a good deal offering a competitive fixed interest rate, or if your loan provider charges high fees for early repayment, it might not make financial sense to remortgage.

On the other hand, house prices have been increasing of late and the Bank of England's base interest rate is expected to rise in the near future. The combination of releasing equity from a property that has gained value and remortgaging to protect yourself from higher interest rates could be an attractive prospect for those in the right circumstances.

Before making your decision on remortgaging, make sure you have all the relevant information about your property, such as its current valuation and how much of it you own. This will help you determine how much equity you can release from the property, which may or may not be enough to allow you to expand your portfolio.

What is the state of the buy-to-let market?

One thing that seems clear at the moment is that borrowers are showing high demand for buy-to-let mortgages, hinting at the strength of the private rental market.

The latest figures from the Council of Mortgage Lenders (CML) show that buy-to-let lending reached £2.2 billion in June 2014, marking growth of five per cent over the month. Approximately 15,600 loans were advanced, the same as in May.

Year-on-year comparisons are particularly striking, with buy-to-let mortgages rising by 38 per cent in value and 23 per cent in number during the 12 months up to June.

This growth could prove encouraging for landlords planning to increase their stake in the private rental market by adding new properties to their portfolio.

Summing up the CML's forecasts for the near future, director general Paul Smee said lending levels are expected to increase modestly over the course of the year, with house purchase driving the trend but remortgaging also picking up.

Buy-to-let mortgage holders could also be encouraged by the trend of rising demand for rental property, as would-be first-time buyers find it increasingly difficult to overcome the financial barriers to buying a home.

According to recent research from Sequence, the estate agency network, there are now six prospective tenants competing for every available rental property. As a result, average monthly rents have risen by four per cent annually to £689.

What does the future hold for house prices?

House prices are a key concern for landlords thinking about remortgaging and expanding their portfolio. Price inflation will increase the value of your current holdings - and consequently your equity - but will also make it more expensive to add properties to your portfolio in future.

At the moment, the prevailing dynamic in the UK housing market seems to be high demand and low supply, the upshot of which is rising prices.

There is no doubt that house price growth, despite occasional ups and downs, has been fairly strong over the past couple of years and we can expect this to continue in the near future. Bank and building society data shows that average house prices have increased from somewhere between £160,000 and £170,000 in May 2011 to upwards of £185,000 today.

However, there have been suggestions that the rate of price growth will ease in the near future. Government schemes such as Help to Buy have given the housing sector some valuable stimulation, but fears over a price bubble could prompt the government to take action to cool the market down.

A recent report from residential agent Hamptons International forecast that house price growth in England and Wales will reach 8.5 per cent in 2014, before falling to 5.5 per cent next year. Affordability constraints and lower expectations of future price inflation are set to contribute to the slowdown.

Fionnuala Earley, director of residential research at Hamptons International, said: "The rate of house price growth so far in 2014 has been a little higher than expected.

"Prices have been driven largely by London and the south-east, but a change in sentiment over the rate of future price growth has affected the whole of the country and we expect that to result in a moderation in house price growth next year."

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