Significant growth in mortgage lending within the buy-to-let sector.
There has been significant growth in mortgage lending within the buy-to-let sector over the last twelve months. Tight restrictions on mortgage lending have made it much more difficult for private individuals to save a deposit and afford to buy a property, resulting in far greater numbers of privately rented homes. There are currently 4.8million privately rented homes in the UK, making up approximately 17% of all homes. Back in 2002 when owner-occupied homes were at a peak, there were 2.5million privately rented homes, making up only 11% of the total. It is predicted that by 2016, 20% all of households in the UK will be privately rented.
This has driven up rental prices and coupled with lower capital values makes buy-to-let a great investment for landlords. In the last twelve months rents have increased by an average of 5.2% in the UK. This and other factors such as tax advantages for landlords and more favourable legislation to remove problem tenants, mean that buy-to-let is viewed by lenders as a much lower risk investment than it was ten years previously.
Over the past year several lenders including Santander and Yorkshire Building Society have entered the buy-to-let market and others have considerably increased their buy-to-let lending, with the Co-operative Bank planning to increase lending by a third. This has resulted in more competitive rates and products. Interest rates on buy-to let loans have fallen by an average of 0.5%, although they are still higher on average than interest rates for owner-occupied properties, and products still require a deposit of at least 25%. This month Coventry Building Society has also launched a number of competitive buy-to-let products.
Mortgage brokers obviously see this increase in lending as encouraging for the mortgage market in general, but with these loans favouring equity-rich landlords rather than the individual or family looking to finance a loan with salary and savings, there is still little in the way of good news for the first time buyer or house mover. However, according to mortgage broker Chris McConnachie of MMI Brokers many new landlords are breaking into the buy-to-let market; ‘Many individuals are now choosing buy-to-let properties as their first choice for long term investment and retirement planning rather than the traditional pension plans which are currently underperforming. We are currently seeing more clients who are in the process of building up a small portfolio of properties. In addition to being a good investment this will also provide them with a monthly income’.