A report by lender Kent Reliance shows the value of buy-to-let property owned by landlords is at £930.7 billion increasing 13.3% in the last year.

The booming buy-to-let property sector is set to break the £1 trillion mark in 2015 according to research by mortgage lender Kent Reliance.

The value of property held by investors has increased from £262.1 billion in 2001 to £930.7 billion. The number of households rented has also increased from about 1.6 million in 2001 to 4.6 million today.

Greater competition from buy-to-let investors has increased the purchase price and reduced the supply of suitable properties for first time buyers or home movers.

Buy-to-let homes have increased in popularity with the rise in property prices although yields have reduced to 4.9% across the country, down from 5.1% in 2013 and 5.3% a year ago.

Increase in buy-to-let mortgages

The number of buy-to-let mortgages has also increased significantly from 142 in the first quarter of 2010 to 627 in the second quarter of 2014.

Lenders have advanced 93,900 mortgage loans to buy-to-let landlords in the first half of this year an increase of 34% compared to this time a year ago. In July there were 17,500 buy-to-let loans up 18% on the year.

The cost of loans has also decreased significantly. From July 2007 to July 2014 the cost of a buy-to-let loan is 1.86% lower according to Moneyfacts.

Unlike residential mortgages, buy-to-let loans are usually arranged on an interest only basis rather than the more expensive repayment mortgage that includes interest and capital.

This is due to the requirement of lenders that landlords ensure rental incomes exceed repayments on the loan by 125%, therefore interest only mortgages make if much more likely to secure the loan in the first instance.

London dominates but yields are falling

London represents 41% of the buy-to-let sector with £377.3 billion in value with the South East of England with 15% or £137 billion. The South East itself is bigger by value than the North East, Wales, Yorkshire & Humber and the West Midlands put together.

London has a bias towards renting with about 25% of the population compared to the UK average of 18%. This is due to individuals and families needing to be more flexible, net immigration, stagnant income and rising house prices.

For London the rapid rise in prices for homes and the shortage of new build properties means it is difficult for first time buyers to secure a mortgage and home movers to upsize their home.

Help with the deposit for a new home can come from family members as the equity release mortgage buyer can access wealth using a lifetime mortgage to gift to children or grandchildren.

High earnings from buy-to-lets

Rising property prices has resulted in falling yields for landlords although they have seen a total annual return of 15.1% over the last year and even higher in London with an annual return of 21.4%.

The average gain in the last year for landlords in the UK is £27,475 per property or £123.6 billion. Since 2007 the gain has been £83,000 and for London £224,257 per property.

The market can expect more novice landlords joining the market from April 2015 as new pension freedoms allow people aged 55 and over to access their pension funds to invest in buy-to-let properties.

Existing homeowners could consider let-to-buy where the remortgage buyer rents their existing property while buying a new home as their main residence.

What are your next steps?

Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to spend on anything such as reduce inheritance tax owed by your beneficiaries or gift to a family member or friend.

Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage cost calculators, property value tracker chart and equity release mortgage calculator.

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