Buy-to-let mortgage LTVs are getting lower

The buy-to-let sector has taken a bit of a hammering in recent years, what with the stamp duty surcharge and scrapping of tax relief, the latter of which will begin to come into effect this Thursday, the start of the new tax year (6 April 2017). However, this doesn't seem to have put off landlords to any extent: experienced landlords still have an average of 13 properties each, with a typical loan-to-value (LTV) of just 35%, so it's clear that buy-to-let could still pay off.

That's according to research from Paragon Mortgages, which found that the average investment portfolio among experienced residential landlords stood at 13 properties during the first three months of the year, in line with the long-term average, with most not expecting to reduce that number in the next year.

Meanwhile, the average LTV continues to fall, declining by 2% compared with the previous three-month period to stand at just 35%, down from 42% five years ago. Indeed, 68% of landlords now have buy-to-let mortgages of less than half the value of their portfolios, hinting at the profitability many landlords are experiencing.

Not only that, but landlords spend an average of 30% of their rental income on mortgage payments, with 43% saying they spend less than a quarter, so the value of mortgages is easily covered by most rental agreements.

It doesn't look as though things will change any time soon, either. Indeed, demand for rental properties shows no signs of waning – 38% of respondents said that tenant demand is "growing" or "booming", while 46% believe that demand will increase further over the next 12 months, and with it becoming increasingly difficult for many to get on the housing ladder, the rental market continues to be vital.

However, there are concerns that the raft of changes impacting the sector could take their toll in the years ahead. As a result, the supply of available rental homes could reduce, and in turn, rents could rise even further. Additional figures from ARLA Propertymark show that 25% of letting agents saw rents rise in February, and with tax changes and the ban on letting agent fees set to bite, the costs "will inevitably be passed onto renters".

This could make it even more difficult for would-be buyers to take that first step, but it also highlights the need for landlords themselves to take the necessary precautions – and finding the right buy-to-let mortgage will be key.

Finding a deal that keeps repayments to a minimum is an absolute must, as it helps reduce the impact of any tax changes, and ensures as much rental income as possible is turned into profit. Our buy-to-let Best Buys are a great place to start, or use our buy-to-let mortgage calculator to thoroughly compare the options and find the best deal for your circumstances.

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