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Lending on hold as landlords face growing demand

The buy-to-let sector must expand to fill the housing gap but lenders are reluctant to fill the funding gap


It’s rare for anyone involved in a sector such as buy-to-let to voice negative feelings about where the market is heading.

Players are usually committed to their market and, in the case of buy-to-let, if they are active landlords why would they be in the sector if they had misgivings about its future?

Of course, continuing to be active in buy-to-let and seeking to buy more investment properties are two different propositions at present.

Uncertainty can result in a degree of pessimism about what is to come, regardless of the current situation. This anxiety is apparent in our landlord survey published last month.

Last time the survey was published 81% of landlords said they were positive about the outlook for the buy-to-let market but last month this figure was down to 64%.

There was also a notable rise in the number of landlords who say they are unsure.

So why might this fall in positivity be occurring? To my mind, it’s not a fundamental problem with the market but rather a frustration at the inability to expand in the private rental sector – particularly the lack of funds available to acquire more properties.

Unfortunately, we can’t predict a more certain end to 2010 given that landlords’ key concerns – the lack of finance, the higher deposits required and intentions to regulate the sector – are unlikely to be resolved by then.

A couple of new lenders have arrived on the scene but they can’t meet the needs of all landlords

And what makes it even more frustrating for professional landlords is that tenant demand looks likely to increase due to a variety of factors.
Prospective first-time buyers are not completing purchases and for social, demographic and political reasons the significance of the private rental sector is growing.

Given the responsibility that is being heaped on the sector’s shoulders along with the apparent lack of an alternative plan to fill the housing gap the government should be considering how it can engineer a solution to the financial constraints that are holding back buy-to-let investment.

Some 66% of landlords tell us their plan for the short term involves sitting tight – an increase of 13% on six months ago. But the problem is that the government can’t afford for private landlords to sit tight if it wants to meet its housing objectives.

While the government is putting pressure on banks to lend more there appears to be little appetite among these institutions to increase funding to the buy-to-let sector.

So what of the specialist sector? A couple of new lenders have arrived on the scene recently but they can’t meet the needs of all landlords on their own.

It’s a tricky problem – how do you incentivise funding to the buy-to-let market while making sure responsible lending practices continue, thus ensuring that buy-to-let remains a professional activity?

We don’t want to open the industry’s doors to every Tom, Dick and Harry lender that may be only too willing to repeat the mistakes of the past.
When you look at it this way, it’s no wonder that status quo is the preferred option not only for landlords but also for buy-to-let stakeholders. So in terms of funding, expect more of the same for the foreseeable future.


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