Buy-to-let hits record high

Buy-to-let borrowing set new records in the first half of the year, with lenders advancing 152,500 loans, worth 17.5bn says the Council of Mortgage Lenders.

That represented an increase of 17% by volume and 20% by value over the previous record totals, posted in the second half of 2005.

There are now 767,000 outstanding residential buy-to-let mortgages in the UK, worth a total of 83.9bn. Because the strong growth of buy-to-let borrowing contrasted with a slower increase in lending in the wider market, the residential investment mortgage market now accounts for 8% of the value of outstanding UK lending, compared to 7% in the first half of 2005.

The proportion of buy-to-let mortgages in arrears of three months or more rose slightly, from 0.68% of the stock to 0.73% in the first half of 2006. But arrears remained lower than in the wider mortgage market, where 0.96% of borrowers were three months or more in arrears in the same period.

Typical underwriting criteria in the buy-to-let market remained unchanged, with an average maximum loan-to-value ratio of 85% and lenders requiring rental income to exceed mortgage repayments by at least 25%.

Commenting on the latest figures, CML director general Michael Coogan says: “The buy-to-let market remains robust, underpinned by strong rental demand. But investors have shown that they are quick to adjust to changing market conditions, so the view that interest rates are now more firmly on an upward trend is likely to cause the rapid growth of buy-to-let investment to slow in the coming months.

Fundamentally, however, the rental market remains sound and looks set to continue to offer good long-term prospects for astute investors.”

Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors, says:

“Economic prosperity and population migration from EU accession countries (Government estimates stand at 329,000 since EU expansion) have increased rental demand making conditions better for buy-to-let property investors.

“The news is not so good for first time buyers with house prices continuing to rise and the alternative of renting steadily becoming more expensive, with RICS letting agents stating that in Q2 rents are rising at their fastest pace since July 2001.

“Buyers will continue to face a property glass ceiling while rents and house prices rise together.”