Latest figures on lending bring good news for prospective landlords in the buy-to-let sector. The information published by the Council of Mortgage Lenders in August shows that for the second quarter of 2012 there was an increase in lending for buy-to-let mortgages of 5%. Between April and the end of June lenders advanced 33,200 loans worth £3.9billion, compared to 32,300 with the value of £3.7 billion in the previous quarter. This takes the number of outstanding buy-to-let mortgages to a little under 1.5 million, which are worth over £160billion. Increased lending for buy-to-let mortgages is likely to continue well into the Autumn, which has always traditionally been one of the busiest times for property.

Lending Increases by 5%

Lending Increases by 5%

Signs of recovery

There is no doubt that buy-to-let lending is recovering after falling to its lowest level in 2009. However, although year on year the buy-to-let market has increased at a greater rate – the number of loans rose 14% from 29,100 and amount advanced increased 18% from £3.3billion – buy-to-let lending is still a third lower than at its peak in 2007.There has been no improvement in the maximum loan to value, with the average still at 75%, having maintained this level – along with minimum rental cover at 125% – for the last three years.

Buy-to-let loans for both housing and remortgaging saw an equal rise in the quarter from April of this year, increasing 3% in volume on the first quarter. Year on year though this growth has been stronger for the purchase of housing – up 17% by volume and 21% by value – rather than for remortgaging – up 10% by volume and 15% by value.

There has been a small increase in how buy-to-let loans are performing, with the number of borrowers over 3 months in arrears having fallen from 1.69% to 1.56% to end of June. Meanwhile there has been no change in the number of buy-to-let properties repossessed, which has stayed at 0.12%. This compares to a small decrease in repossessions of owner occupied properties – from 0.08% to 0.07% – which could be expected to remain small, as efforts wherever possible are made to delay foreclosure for people’s own homes.

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The future

Thanks to the continued increase in demand for properties to rent in the private rental sector – largely due to the difficulties first time buyers are still having in getting on to the property ladder, as a result of struggles to save sufficient deposit and high mortgage rates – the buy-to-let sector is likely to continue to expand. Although there are still more prospective tenants seeking properties than there are properties available to rent, the continued growth of the buy-to-let sector will benefit tenants, providing a greater choice of properties from which to select from. However, it has been suggested that the rise in people seeking to rent can’t keep growing forever and a ceiling will be reached, though we are not as yet near that point.
The buy-to-let sector is recovering as expected. Compared to other forms of investment, buy-to-let property returns remain a very good option. The buy-to-let property market is likely to continue to see further growth as more buy-to-let lenders resume their provision of mortgages and more competitive mortgage rates return.

Could the improvement in the lending for buy-to-let signal an increase in lending to those seeking a mortgage for their own home? Unfortunately anyone struggling to finance their own home at present should not read too much into the latest news regarding buy-to-let lending. As landlords are often experienced professionals, their arrears tend to be lower than for those in the residential market, so lending to landlords is seen as a smaller risk.