Buy to Let

by Mark Johnston

The uncertain economic climate is weighing negatively on house purchase activity, but buy to let lending is strong.

The rental market is seeing healthy growth due to tight lending and high deposit demands which are causing many people to rent. Renting also allows people to easily move to where jobs and therefore better security exists in this time of high unemployment.

Buy to let activity has remained generally flat in 2010 seeing only a brief rise and then decline until the start of 2011 when activity started to rise dramatically.

Michael Coogan, director general of the Council of Mortgage Lenders (CML) has said that “generally, prospects for the rental market are good.

Figures from moneyfacts.co.uk show that the size of the buy to let sector has increased considerably with in the last 12 months. Professional landlords have taken advantage of stagnant house prices and rising rents in recent months.

Landlords raising capital to fund portfolio expansion are driving the growth of the buy to let re-mortgaging, new research shows.

The Council of Mortgage Lenders (CML) figures show that there was a significant increase in buy to let re-mortgage cases in the first and second quarters of this year, 21 percent, it appears that a large proportion of these cases are landlords releasing equity to generate capital for portfolio expansion.

The buy to let market continues to show strong growth with an increase in the value and number of loans.

Data shows that re-mortgaging hit its highest level since 2008, when it represented 53 percent of the total £3,500 million buy to let lending. There were 32,000 buy to let loans worth £3.5 billion advanced in the second quarter of 2011.

John Heron, managing director at Paragon mortgages claims that approximately two thirds of properties in the private sector have no mortgage or loan to value (LTV) ratios of 48 percent. He therefore suggests that there is a “huge amount of equity in this sector and landlords are using this to help fund portfolio growth”.

In a market characterised by high rental demand, this could become more commonplace.

With this in mind lenders should now be aware that the ‘one size fits all’ approach to lending in this sector may be nearing the end of its shelf life. Many experts believe that lenders should figure how smart their individual landlord customer is at being a landlord and then reflect that in their loan offers.

On the back of all this mortgage lenders should now design mortgage products that meet the real needs of the modern private landlord, if they do not they could find themselves losing huge profits and market shares.

Landlord activity does seem to have increased over the last year with evidence of strong rental demand which should help underpin lending activity over the coming months. However Richard Sexton, business development director at e.surv adds “it would be presumptuous to view this as a sign that lenders have greater capacity to increase lending in the long term”.



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