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Buy-to-letwatch – David Whittaker- June 2012

Before offering an opinion on whether I think buy-to-let lending is starting to level out, let’s take a look at recent data.

Comparisons with the heady days of 2007, when the market was crazy, are inappropriate, so I’ll go back to the start of 2010, when buy-to-let first showed signs of recovery post-credit crunch.

Q1 2012 buy-to-let lending figures released last month by the Council of Mortgage Lenders totalled £3.7bn, representing some 32,000 loans. While this may have been down 7.5% on Q1 2011, it was 76% higher than Q1 2010.

So the sector has been in recovery, but is it levelling out? One quarter’s worth of downward data is insufficient to judge. In Q1 2011 too, the CML reported an unexplained lending dip followed by a bounce back in the subsequent quarter. Perhaps investors are naturally more cautious at the start of each year?

Published data alone won’t give us an answer. A look at what’s happening at the coalface, although more anecdotal, could provide indicators on buy-to-let lending for the rest of this year at least.

There have been 25 lenders in the sector for the last two quarters. The number of buy-to-let products available has averaged out at 442.

Average gross yields for the sector have settled around 6%, which is roughly 1% higher than the long-term run rate.

From this we can gather that rents have reached a point of maximum affordability. Yields in the sub-sectors too remain fairly constant – houses in multiple occupation hover around 10%, multi-unit blocks around 6.5% and mixed investments around 7.5%.

The residential owner-occupier market has slowed since the end of the Stamp Duty concession in March. This will increase pressure on the rental sector.

Our last property investor survey in February found that 58% of respondents wanted to expand their portfolio this year. Of these, 63% would need to refinance existing property to do so.

While most were considering vanilla property purchases, it was encouraging to see that many were also looking to buy more complex property types.

And while 42% did not intend to expand, over half considered remortgaging existing properties.

Last week we exhibited at the South West Landlord Expo in Bristol. The event was well attended and many landlords were positive about the prospects for the second half of the year.

Most of them accept there is now greater lender choice and better products.

There was much talk of hunting out higher yielding properties, particularly those in need of work to give a quick uplift in values, and even more complicated projects.

In the office, we still see a lot of investors being forced to refinance by the likes of Royal Bank of Scotland, Lloyds Banking Group, anything Irish and now Clydesdale and Yorkshire banks.

Most of these investors have strong portfolios so finding alternative finance has been relatively straightforward.

I expect this trend to continue as we enter the second leg of the financial crisis and the high street banks continue to reduce their exposure on property.

In May we saw the highest monthly case count since the onslaught of the recession. Surely we can’t be the only buy-to-let broker to have witnessed improved business?
So perhaps the Queen’s Jubilee celebrations, the football, the Olympics and the summer holidays will slow business.

Only time will tell – but from where we’re standing, a levelling out in 2012 remains to be seen.

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