Buy-to-let market is buoyant

2012 could see a surge in rental sector investment
2012 could see a surge in rental sector investment

Buy-to-let lending has increased by nearly a fifth in the space of a year amid strong growth in the rental sector, figures have shown.

Some 33,200 loans worth £3.9bn were advanced between April and June this year, an 18 per cent increase on the amount of cash advanced compared with the same period last year, the Council of Mortgage Lenders (CML) said.

Rents have soared in recent months as would-be buyers have remained trapped in the rental sector because they cannot raise a deposit or meet lenders’ toughening criteria.

Suggestions have also been made that many people are choosing to rent because of uncertainty surrounding the housing market.

However, the CML cautioned that buy-to-let lending is still recovering from a low point in 2009 and lending volumes remain at about a third of their peak in 2007.

CML director general Paul Smee said: “Buy-to-let is continuing to show signs of recovery and growing broadly in line with expectations.

“The rental sector has grown strongly over the last decade or so and buy-to-let continues to help deliver a wider choice for tenants.”

A recent study by LSL Property Services, which owns chains Your Move and Reeds, found that average rents increased by 0.9 per cent month-on-month in June to reach £718 a month, the third month in a row to experience a rise.

Ed Stansfield, chief property economist at Capital Economics, said buy-to-let lending is a “key prop” for the sluggish mortgage lending sector as a whole.

He said: “Landlords are typically less credit-constrained than first-time buyers, meaning that there is likely to be a steady demand from frustrated buyers for property in the private rental sector.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said that relatively strong rental returns were attracting investors at a time when the housing market is generally difficult.

Mr Harris said: “While capital growth on investment properties is likely to remain subdued for some time to come, income is strong and returns favourable when compared with other investments.

“Buy-to-let is only going to grow in popularity as more lenders return to the market.”

The CML figures also showed that despite the pressure on household budgets, there has been a slight improvement in buy-to-let loan arrears.

The proportion of borrowers who are more than three months in arrears has declined from 1.69 per cent at the end of March to 1.56 per cent by the end of June.

The share of buy-to-let properties which were repossessed remained stable at 0.12 per cent, compared with a slight fall in the proportion of owner-occupied homes which were repossessed, to 0.07 per cent.

The CML said it was not surprised to see a lower repossession rate among owner-occupied properties as lenders tend to try particularly hard to keep these people in their homes.