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.
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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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.