Buy-to-let market is buoyant but cautious, says ARLA

The Association of Retail Letting Agents has found that the buy-to-let market is buoyant but cautious, based on its Survey of Trends among the ARLA panel of mortgage lenders.

The average monthly total of actual loans for buy-to-let investment rose by 30% compared to the previous six months. However, the average loan at £82,141 was only 2.4% more than the previous average of £80,100.

John Crossley, chairman of ARLA, says: “When you consider the soaring house prices, this clearly demonstrates a buoyant market for investors who are taking a properly cautious attitude to their investment.”

The findings were the result of the survey conducted among the ARLA panel of lenders for the six months to September 30. The ARLA panel is made up of Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and Standard Life Bank.

The average loan size for Prime Central London remains by far the largest of any area in the country at £198,800. This is nearly four times the average figure of £53,900 for Northwest England and North Wales and well over twice the size of the average loan for the country as a whole.

However, the average loan amount for property in Prime Central London has decreased by 2% while the rest of London has remained unchanged. Loan amounts increased in all the other regions from between 5.8% in the South East and 14.4% in the South West.

London and the South East still take the greatest share of all new buy-to-let mortgages with 43.9% of the national total, including Wales, Scotland and Northern Ireland. The Midlands accounts for 14.2%, the North East 4.2%, the North West with North Wales 12.6% and the South West with South Wales 12.8%.

Most buy-to-let borrowing is on the basis of no planned repayment of capital at all. Interest only loans were the most popular among over three quarters (76%) of Prime Central London investors and with over two thirds in South East England (64.9%) and South West England with South Wales (67.8%)

The reverse is true of Scotland and Northern Ireland. These are the regions where planned repayment of capital as well as interest is the most popular. Nearly three quarters (71.5%) prefer planned repayment in these regions. The second highest region for taking this approach is the Midlands with 41.2% planning repayment of capital.

Interest only and capital and interest are the only two payment types of any significance with buy-to-let mortgages. Overall, the figures split 64.2% for interest only mortgages while 35.3% of borrowers include capital repayments.

Fixed rate mortgages are the most popular in Prime Central London (52.8%) but only account for just over a third (34%) in the North West. In Scotland and Northern Ireland, discount rates are the most popular at 43.8% of all buy-to-let lending.

In the North West and North Wales other interest rate types of mortgage are more favoured. Tracker rates based either on LIBOR or Base Rate accounted for nearly half of all lending arrangements.

Crossley says: “Apart from killing the twin myths of &#39bubbles&#39 and &#39burst&#39, these figures augur well for the health of the private rented sector in particular and for the housing market in general.”