The buy-to-let market is being seriously damaged by the withdrawal of specialist mortgages, the latest figures from the Council of Mortgage Lenders reveal. Yet for those who can access finance, the rewards from letting property remain strong.
Worst hit of all
Buy-to-let lending fell again in the first quarter of this year – the sixth consecutive quarterly drop in home loans to the sector. The cut in specialist buy-to-let lending is much more severe than the shortage of mortgage lending in general.
The share of buy-to-let lending of all mortgages – in a much reduced market place – has shrunk from 12% of new loans a year ago, to just 6% now.
Only 22,400 new buy-to-let mortgages were provided in the first quarter of 2009, down from 72,400 in the first quarter of last year. There was even a sharp fall over the previous quarter – when 38,000 buy-to-let mortgages were advanced – illustrating both a growing reluctance by lenders to provide mortgages to the sector and also a withdrawal of specialist products.
This trend is backed-up by reference to the values of loans issued for buy-to-let. While loans in the first quarter of 2008 were worth £9.5bn, the comparative figure this year was a mere £2.1bn.
Growing arrears
It also looks as if many existing landlords are facing an affordability crisis. Arrears on mortgages have risen more than three-fold in a year – from 0.92% in 2008 to 3.09% now.
However, the Council for Mortgage Lenders (CML) suggests the figures are misleadingly inflated because of the way calculations are made. But repossessions of buy-to-let properties have risen – from 900 in the first quarter last year, to 1,700 in the period in 2009.
It is clear the sector is in trouble, whichever measures are considered.
No surprise
Michael Coogan, the CML's director general, says the trend is not a surprise. "Many buy-to-let lenders relied on wholesale markets rather than retail savings to fund their lending," he explains.
"Some have therefore had no access to the measures to support capital and new lending that have been available to deposit-takers. This, along with general housing market weakness, has influenced the decline in buy-to-let lending."
Yields still strong
Despite this pessimistic picture, landlords who are well-financed are sitting pretty, a survey from lettings agency Ludlow Thompson suggests. It reports that yields in the first quarter of this year in London were 6.2% - an attractive return in current economic conditions. Yields fell by a mere 0.1% in a quarter, at a time when the base rate and savings rates plummeted.
Stephen Ludlow, director of Ludlow Thompson, says: "We've heard a lot about collapsing house prices since the economic crisis began, but there has been a failure to recognise that residential property now offers healthy levels of income for yield-hungry investors."
Despite the evidence from the CML, Ludlow believes there are signs that buy-to-let mortgages are now again becoming easier to obtain – at least, for those investors holding deposits of at least 25% of property values.
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The share of buy-to-let lending of all mortgages – in a much reduced market place – has shrunk from 12% of new loans a year ago, to just 6% now.
