Buy to Let mortgage market holds firm » Housing » 24dash.com

The buy-to-let mortgage market held firm during the second half of 2007 despite the turbulence caused by the global credit crunch, figures showed today.

A total of £24.1 billion was advanced to investment landlords during the six months to the end of December, up from £21.2 billion during the first half of the year and 16% more than in the same period of 2006.

At the same time, 179,100 individual loans were taken out during the period, 4% more than during the first half of the year, the Council of Mortgage Lenders said.

The rise pushed the number of outstanding buy-to-let mortgages through the one million barrier for the first time, to nearly 1.04 million - a 23% jump on the number of loans in existence at the end of 2006.

The buy-to-let sector now accounts for one in every five new mortgages taken out to buy a property, a record high.

Michael Coogan, director general of the CML, said: "Buy-to-let has remained resilient in the face of the funding constraints that have affected the sector and the wider mortgage market.

"Many buy-to-let loans have interest rates linked to interbank rates, so may have seen hefty increases in payments when Libor rose to abnormally high levels in the second half of 2007.

"These are now likely to be returning to lower levels in line with the reduction in Libor rates since December last year."

But despite the increase in mortgage rates, there was only a slight rise in the number of investment landlords unable to keep up with their mortgage repayments.

Around 0.73% of buy-to-let loans were in arrears of more than three months at the end of the year, up from 0.58% a year earlier but well down on the 1.1% that are in arrears across the wider mortgage market.

The proportion of buy-to-let properties that were repossessed also rose to 0.18% during 2007, compared with 0.13% in 2006 and 0.23% across the whole market.

Overall, lenders required an average deposit of 15% for a buy-to-let mortgage and rental income of 120% of mortgage repayments.

Going forward the CML said it expected there to continue to be a "healthy appetite" for buy-to-let finance this year, backed by continuing consumer demand for private rental property.

Kelvin Davidson, property economist at Capital Economics, said: there was "scant evidence" in the CML figures that the buy-to-let sector felt any ill-effects from the credit crunch during the second half of 2007.

He said the number of new loans taken out for house purchase was down 4% year on year, but the overall mortgage market had declined at a much faster rate.

He said: "Looking ahead, however, with house price falls firmly on the cards this year, we continue to expect the buy-to-let mortgage market to soften materially.

"Two months have passed since these data were collected. In that time, mortgage lenders have only become more cautious and general economic and housing sentiment has deteriorated.

"In our view house prices will fall this year, and, against that backdrop, we expect a much more subdued buy-to-let sector."

Ross Bowen, managing director of Connells survey and valuation, said: "Our research conflicts with the CML. The buy-to-let sector has seen its share of the purchase market fall from 13% in the first two months of 2007, to just 10% at the start of 2008 according to Connells data.

"The total number of people buying homes has fallen to its lowest level in 14 years and buy-to-let has suffered more than other areas of lending."

But Tim Hague, managing director of mortgages at Birmingham Midshires, disagreed. He said: "Looking at 2008 and beyond, we predict that buy-to-let yields will remain strong.

"With demand continuing to outstrip supply, buy-to-let will continue to be in demand due to socio-economic factors such as rising immigration."