The ARLA panel of lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business, represent some 40% of all buy-to-let mortgage lending. ARLA represents 1,500 lettings and residential management offices.
Speaking in London, Robert Jordan, president of ARLA, said that true buy-to-let is an example of private enterprise fulfilling a social need for choice in housing while also providing a fair return for the landlord.
He says: “It is about fair returns and quality accommodation, not get rich quick schemes. True buy-to-let has provided a choice and quality of accommodation that is better than ever before, a fact recognised by the office of the deputy prime minister.
“With the aid of buy-to -let, the private rented sector provides flexible housing for a mobile workforce, accommodation for the ever expanding number of students in higher education and a partnership with registered social landlords. All of this is about mature investors supporting the sector for the long-term.”
Although repeated surveys allow the ARLA panel to be confident that most investors in residential property invest for the long term, using long-term tenancies, they are seeking to remind the public that many areas of property dealing are being improperly linked to buy-to-let and are abuses of the brand. These include speculative buying off plan, buying in foreign markets and in holiday homes in the UK and abroad.
Jordan says: “Super house inflation has brought about a secondary market that purports to be buy-to-let and probably uses mortgages from some lenders to fund these activities. These include off-plan buying where the purchaser is speculating on the increase in house prices. Sometimes these propositions include a guaranteed rent but the public should be aware that these guarantees are no more than a delayed discount and no real guarantee of the rent that can be achieved, or that the property can be let at all.”
The phrase buy-to-let has also being used to sell holiday homes.
Jordan adds: “Letting these properties is, at best, a way of subsidising holidays. You may get a let or two but the competition is fierce, so don't bank on it. Holiday homes in the UK are not buy-to-let either, nor are rooms for sale in an hotel.”
John Heron, chairman of the ARLA buy-to-let panel and managing director of Paragon Mortgages, says: “Buy-to-let lending looks impressive but it still accounts for only a small proportion of the total private rented sector. According to the government, the private rented sector has some two and a half million homes and by the end of 2003 the Council of Mortgage Lenders had reported that there were just 400,000 buy-to-let mortgages in place. This is in a market that is polarised between small scale private investors and professionals. Over half, 53%, of the investors in the private rented sector own just 3% of the rented housing stock.”
Research shows that the small-scale private investors augment other investments by owning between one and five properties. They are less yield driven than professional investors who commonly hold 11.5 properties and for whom buy-to-let is a primary business activity. Both groups see buy-to-let as a long-term strategy.
Heron adds: “In contrast, property speculators buy and sell quickly, are price inflation driven, have no real interest in tenants and should not be given access to buy-to-let mortgages.”
Buy-to-let lending figures show that arrears are half the level of those experienced with other mortgages, with losses and re-possessions almost non-existent. There is no reason for this to change as, looking to the future, the ARLA panel believes that buy-to-let has strong defensive qualities in a softer housing market as the need for rented properties expands.
The initiative to hone the definition of buy-to-let was launched a week before the eighth anniversary of the launch of buy-to-let. It coincides with the publication of the third quarter ARLA review and index which shows almost a third of all ARLA offices report more tenants than properties, up from 20% three months ago. This 12% swing is seen as an important indicator of a sustained pick-up in lettings. It is the third quarter to show a reduction in available rental stock.