GMAC-RFC launches discounted buy-to-let tracker

Prime country house prices up £300,000 on average in 2006

Rental yields decline as values increase

Shock as Bank of England raises interest rates to 5.25%

GMAC-RFC launches discounted buy-to-let tracker

GMAC-RFC has unveiled a new buy-to-let tracker that it predicts will force other lenders to respond to or risk losing market share.

The lender has launched the product in response to the widening gap between purchase prices and achievable rents, which GMAC-RFC says is increasingly becoming a problem for landlords.

The buy-to-let product requires 27% less rental income enabling the landlord to purchase or re-mortgage more properties.

Jeff Knight, director of marketing at GMAC-RFC says: “The new buy-to-let product offers a solution to the property investor in the current environment where mortgage rates may rise but rental rates may not. This product has an extremely low rental requirement.”

The product is a tracker at the Bank of England Base rate minus 0.01% for three years then it then reverts to Base rate plus 0.99% for the remainder of the term. It is available for purchase or re-mortgage and has a maximum LTV of 85%. It has a five-year early repayment charge of 5%, 4%, 3%, 2%, or 2% and there is an arrangement fee of £1,495.

Prime country house prices up £300,000 on average in 2006

Knight Frank’s Prime Country House Index reports growth of 11.2% in prime country house prices during 2006 – the highest rate of growth since June 2004.

Owners of country cottages, farmhouses and manor houses respectively, saw price growth equivalent to £3,591, £9,580 and £26,358 each month in the year to December 2006.

Owners of the most prestigious houses have seen their value rise by £866 a day, every day for a year. Price growth has been led by the larger manor houses and properties priced at above £3 million, which rose 17% last year.

Knight Frank’s head of residential research, Liam Bailey, comments: “The strongest performing sector was the manor house category – larger houses with land – which saw upwards of 11.9% growth over the year.

With the City economy performing well and the prime Central London housing market going from strength to strength, London buyers have taken advantage of continued high price growth and have taken their money out to the country.”

Country cottage prices were 10.4% higher in December compared to 12 months earlier, with the average example increasing in price to £530,000 over the 12 month period (an increase of £43,000). The typical cottage has up to one acre of land, is detached, and has three bedrooms.

Rental yields decline as values increase   

Rental yield data recently released by Landlord Mortgages (LLM) reveals that UK residential rental yields hit a five-year annual low in 2006. Scottish residential rental returns showed the largest drop, from 8% in 2002 down to 6.46% in 2006. Less dramatic declines were recorded over this period in England (7.1% to 5.74%) and in London (6.37 to 5.81%). Whilst declining rental yields are not such great news for investors, this should be set alongside the very healthy capital appreciation that many existing residential investors have enjoyed over that period. 

Lee Grandin of LLM comments: "According to Halifax Bank the cost of the average UK property has risen by 66% over the last five years, while residential rents have risen slightly above or in line with UK inflation. This phenomenon has created an environment where private investors need to be less concerned with high rental yield figures and more concerned with achieving sufficient rental income to cover their mortgage repayments. "Savvy investors need to concentrate on finding the right balance between the prospect of long-term capital growth, rental coverage and profit when they search now for the ideal buy-to-let investment." 

LLM say that 2006 saw moderate gains in rental yields recorded in London (increase from 5.53% to 5.96%) and England (increased from 5.54% to 5.82%). However, Scotland, which traditionally boasts one of the strongest rental markets, experienced a significant quarter on quarter increase in yields (5.91% to 6.88%) in the period to Q4 2006.

Shock as Bank of England raises interest rates to 5.25%

The Bank of England has raised UK interest rates to 5.25% from 5% in an effort to curb inflation. Analysts had been anticipating a rate rise of 0.25% in the near future, although they expected policymakers to wait until February.

Consumer price inflation has recently risen to 2.7%, the highest level in more than a decade. The rise is the third in four months, as part of an effort by policymakers to stem inflationary pressures.

The news will come as an unwelcome surprise to landlords and will add £21 to the monthly payments of those with a £100,000 interest only mortgage.

In a statement announcing its decision, the Bank of England said it expected consumer inflation to rise further in the near future.

Inflation is already well above the government's 2% target and some analysts believe it will exceed 3% when the latest figures are published this month.