Buy-to-let is one of the most scrutinised sectors of the mortgage market but it is also one of the most difficult to understand. The Council of Mortgage Lenders pumps out regular data showing the volume of lending and the number of outstanding mortgages in the sector. Lending totalled £24.1bn in the second half of 2007, up from £21.2bn in the first half of the year and £20.8bn in the second half of 2006.
And there were 179,100 ongoing loans including remortgages in the second half of the year, up from 171,800 in the first half of 2007 and 177,200 in the second half of 2006. The total number of outstanding buy-to-let mortgages has now passed the million mark, standing at 1.038 million at the end of 2007 – nearly 23% up on 2006’s figure.
This sounds good but if you analyse the figures quarter by quarter you’ll see that the number and value of buy-to-let gross advances in Q4 2007 were down on Q3’s figures. Is this a sign of the bubble bursting as some commentators say or do the figures simply reflect the overall slowdown in the mortgage market?
A sensible way to find out if landlords are getting the jitters is to ask them, which is what the Association of Residential Letting Agents has done. In January ARLA dis- covered that nine out of 10 landlords polled intend to keep their properties until 2025. Of those, 40% expect to expand their portfolios this year.
But are landlords really that confident or are they trying to talk the market up? At the recent Mortgage Strategy Packager Summit in Monte Carlo, Robbie Sargent, director of Fitch Ratings, said buy-to-let performance has remained strong and is outperforming residential loans.
Recent criteria creep in buy-to-let has been reversed in response to the liquidity crisis and although property price falls will test landlords’ long-term commitment to the sector, the affordability struggles of first-time buyers and strong demand for rental property are good news for the market.
Fitch’s official verdict is that the sector is stable. Given the state of the economy and the wider mortgage market, this is cause for celebration.
At the recent Mortgage Strategy Buy-to-let Summit in Hook, Hampshire, Michael Ball, professor of urban and property economics at Reading University, said the long-term prospects for the buy-to-let sector remain bright. Investors are in a good position and rental demand tends to grow during a market slowdown.
Taking everything into consideration, my conclusion is that the buy-to-let market is one of the best places for brokers to be in 2008 and beyond – or is this the biased view of a buy-to-let lender?
Brokers must remind landlords to comply with Tenancy Deposit Scheme
If all is well with the buy-to-let market, the same cannot be said for the government’s Tenancy Deposit Scheme. It specifies that landlords must protect their tenants’ deposits using one of three authorised schemes but research reveals that over 40% of them are still unaware of their responsibilities.
The scheme applies to assured shorthold tenancies with deposits of up to £25,000. The three options on offer include a custodial scheme whereby landlords pay deposits in themselves and two options based on insurance where they retain deposits but pay premiums to insurers.
Whichever option is used, tenants’ deposits should be protected but they still have a responsibility to ensure they maintain property in good order under the terms of their tenancy agreements.
If properties are damaged, landlords can withhold deposit funds to pay for repairs. Brokers should check their buy-to-let clients are aware of the scheme and have taken the appropriate action.
Also, landlords need to be aware that from October 1 they will need to provide Energy Performance Certificates to prospective tenants. But there’s no need to provide EPCs to existing tenants and once obtained they are good for 10 years.