More misery for mortgage sector but buy-to-let continues to grow

03 December 2007
Mortgage holders are preparing for major cut backs this Christmas in order to meet increased mortgage repayments, yet landlords are celebrating a tidy profit as the buy-to-let sector soars.

According to new research from Lloyds TSB, two out of three people who have already remortgaged, plan on budgeting over the festive season while seven out of ten re-mortgagers are preparing their finances for a rise in repayments when their current deal expires.

The study by Lloyds asked over 1,000 homeowners due to re-mortgage before the end of the year on how they intend to meet these increased costs. More than three quarters of under 25s said that curtailing the festive budget was the best way of reducing the family spending however one in six remortgagers plans to take on an extra job in order to meet increased household costs - with this figure rising to one in four among under 35s.

Alison Burns, Director of Network Mortgage sales at Lloyds TSB comments: "Cutting back on festive spending offers a short term solution but it’s a good idea for people with mortgages to take a longer term view of their financial situation to ensure their mortgage is suited to their specific needs and changing circumstances.

"Some consumers may prefer a stepped rate deal that allows them to ease into the new higher interest rate environment. Other homeowners might opt for a tracker product, which will enable them to benefit from any potential drops in interest rates."

However, while mortgage holders struggle to find the rocketing repayments, renters are fighting their own battle after the buy-to-let sector reported an increase in rents following a period of sustained growth.

At a time when many potential homebuyers are delaying property purchase given the cloudy outlook for house prices and interest rates, strong growth in demand for rented accommodation from immigrants to the UK has continued.

According to Paragon's October Buy-to-let Index, strong tenant demand for rented accommodation has pushed the average rental income generated by landlords to a record high, with rents hitting around £11,066 during the month, 10.2 per cent higher than a year ago.

This report comes as the fourth annual Halifax survey of Empty Homes in England is released which shows that there were 288,763 empty private homes in England in April 2006 which accounted for 1.6 per cent of all privately owned dwellings in England. This is likely to present a growing number of investment opportunities for buy-to-let landlords.

John Heron, Paragon’s Director of Mortgages, explains: "Whilst we may be entering a period of slower homebuying activity, the underlying demand for homes continues to grow as the UK population swells, new households are formed and the population gets older. That translates into buoyant tenant demand for a limited supply of rented homes…Landlords continue to invest, which explains why buy-to-let lending has held up well according to latest reports from the CML."

Find out more about buy-to-let mortgages or read our guide to mortgage interest rates

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