Struggling first time buyers means better buy to let business for UK landlords
The number buy-to-let mortgages lent to landlords rose by a third over the first three months of 2012, according to the Council of Mortgage Lenders (CML).
The CML said that 32,300 buy-to-let loans were made over the first quarter of the year, a 32 per cent increase on the first three months of last year.
Meanwhile the number of mortgages lent to first-time buyers in April dropped to their lowest level for nine months, according to chartered surveyors E.serv. The company said that loans made to first-time buyers in April numbered just 11,307, a fall of 5 per cent from March and the lowest since last July.
Property experts said that mortgage companies are increasingly reluctant to lend to first-time buyers due to the high loan-to-value rates that they require. Mortgage firms are far more willing to lend to buy-to-let landlords, who tend to have more money and can therefore pay a larger deposit.
Richard Sexton, business development director at E.serv, said that mortgage companies have “begun to scale back” lending to first-time buyers. “Buy-to-let landlords are taking the places of first-time buyers as there is an absence of them in the market place because they can’t get loans,” said Mr Sexton
He said that the housing market would be in a “far worst place” than it is now if it were not for the return of buy-to-let landlords.
Jonathan Samuels, the chief executive Dragonfly Property Finance, said that there has been a “seriously sharp spike” in loan applications for buy-to-let properties in the first four months of 2012. He expects the increase in buy-to-let lending to carry on “for some time yet”.
“A shortage of rental stock and strong demand from the growing number of forced tenants will keep driving the sector forward. There’s a lot of portfolio building, as investors add properties to give them increased exposure,” said Mr Samuels.
He said that people are seeing buy-to-let as a “pretty stable place to be” because property prices are falling and mortgage lenders still see lending to owner-occupiers are risky.
“Investors feel that there’s a lot left in the buy-to-let market and are putting their money where their mouth is,” said Mr Samuels.
However he warned that buy-to-let landlords need to “know what they’re doing” and should be prepared for interest rates to rise.
The CML said that although lending to buy-to-let landlords has grown sharply in the last year, it is still at only around a third of its 2007 levels.
Matt Hutchinson, a director at property website Spareroom.co.uk, said: “Will buy-to-let lending every return to 2007 levels? With average loan-to-values on buy-to-let mortgages at 75 per cent and average minimal rental cover at 125 per cent it is unlikely, as 25 per cent deposits will prevent a large number of people, particularly amateur landlords, from buying rental property.”
Tracy Kellett, managing director of BDI Home Finders, a firm of buying agents, said although the buy-to-let market is up it remains a “shadow of its pre-housing crash levels”.
Grant Shapps, the Housing Minister, said: "We do not have to make a choice between first time buyers and buy to let. We need both. And while a third of all mortgages went to first time buyers last year, only 12 per cent went to buy-to-let landlords.
“But I’m determined to pull out all the stops for those who want to get on the property ladder, which is why in March the Prime Minister and I launched the NewBuy Guarantee scheme which is expected to enable up to 100,000 aspiring homeowners to buy newly built properties with just a fraction of the deposit they would normally need."