Property investors and landlords are reaping the benefits of a strong buy-to-let market, with lenders stepping up their activity and record levels of business being conducted within the market over the past six months, according to the latest Council of Mortgage Lenders (CML) figures.
The figures for the second half of 2005 revealed an increase in buy-to-let lending by 39 per cent from the first half, with 130,400 loans advanced by lenders during this period. Lending values also rose to £14.6 billion, a record figure and almost 50 per cent stronger than the preceding six months.
Andy Young, managing director at The Business Mortgage Company (TBMC), welcomed the news and admits the market is strong for property investors at the moment. He says: “The market picked up considerably during 2005 and this seems to be continuing into 2006. There are a number of reasons for a strong buy-to-let market.
First-time buyers are finding it hard to save up for a deposit and many will not be able to afford the mortgage rates. Until earnings outstrip price increases, first-time buyers will continue to find it hard. Also people now want a lot more freedom and attitudes to housing have changed. People are happy to rent and with job changes and circumstances changing, renting allows a greater level of freedom.”
Changing criteria
With the number of people renting on the increase and lenders offering highly competitive buy-to-let products, Paul Hunt, head of marketing at Platform, admits changes had to be made to its buy-to-let offering to appeal to the growing market. He says: “We took the bull by the horns, and made changes to product criteria and pricing as well as introducing ‘Click decision’ which made applications a lot quicker.”
With lenders adapting their criteria to suit the needs of the prospective landlord and responding to market trends, the record growth within the buy-to-let market has moved to allay fears that engulfed the sector following the u-turn on the Self-Invested Personal Pension (SIPPs) ‘opportunity’ in October.
However, Young suggests the general buy-to-let market and TBMC’s business plan did not change as a result of the SIPPs u-turn. He says: “We didn’t expect any additional business as a result of SIPPs and I think in fairness most industry pundits did not think they would have a massive impact on the market.”
This is backed up by Mortgage Trust research, which indicated 88 per cent of landlords questioned stated the SIPPs u-turn would not change their property investment intentions. Furthermore, the research indicated landlords expect to expand their portfolios by, on average, one property per landlord. Nicola Severn, marketing manager at Mortgage Trust, says: “With favourable borrowing conditions, healthy rental demand and an expectation of steady house price rises among investors, the outlook for the buy-to-let sector is very favourable indeed.”
Squeezed out
However, as a result of a strong buy-to-let market and landlords expecting to enhance their portfolios, Kim Barrett, proprietor at KS Barrett & Associates, argues first-time buyers eager to step onto the property ladder are being squeezed out of the market, caught in a ‘Catch 22’ situation. He says: “Any market works on a supply and demand basis, so it’s ‘Catch 22’. Is it that buy-to-let investors are fuelling the ever-increasing price of property at the lower end of the market, or is it simply that they are filling the vacuum left by the lack of first-time buyers? My answer would be a bit of both. Clearly, however, with the rising price of property, first-time buyers are finding it more difficult to buy. Such difficulty is not presented to a buy-to-let investor as they obviously have the funds to invest, and one assumes the disposable income to demonstrate an ability to service any mortgage raised, although most buy-to-let lenders will simply require that the rent achieved from the let is adequate on a 125-115 per cent ratio to cover the mortgage payments.”
Viable option
Barrett’s argument is backed up by CML figures into the first-time buyer market that reveal up to half of all young first-time buyers are resorting to getting financial help from their parents to assist their deposits.
However, Barrett goes on to admit that with young buyers unable to afford a deposit on their own, renting may in fact be the only viable option for the majority of would-be first-time buyers. He continues: “The lack of deposit and legal expenses needed to purchase a property cause the greatest problems for first-time buyers, especially with the tendency among the young to finance their lifestyles on debts. Once youngsters go down this road they will always have to struggle to get on the housing ladder.”
With stable interest rates, property investors and landlords eager to tap into the market and many first-time buyers unable to save enough for a deposit it seems the buy-to-let market is likely to continue in the same vein for some time.
Grant Bather is a news reporter at Mortgage Introducer
