Reports of the demise of the buy-to-let market seem greatly exaggerated. According to the announcement by the Council of Mortgage Lenders (CML) in August on buy-to-let lending for the first half of 2002, the bubble has not burst. The CML confirmed total buy-to-let market lending of £5.5bn for the half year is the highest total lending seen since it started compiling statistics in 1998. Lending value is up 120% and 34% on the first and second halves of 2001 respectively. And the 58,000 buy-to-let mortgages mean a 107% and 38% increase on loans completed in the first and second halves of 2001.
The CML figures support, many lenders and introducers’ confidence in the market. But crucially this is also backed up by hard evidence. Information on the future supply and demand of rented accommodation indicates the buy-to-let market has a bright future and demand for rented accommodation is projected to outstrip supply of newly available rented accommodation.
Then there is the low level of arrears. Arrears in the buy-to-let market are less than half the level for residential mortgages.
And it is apparent that investors remain confident. They continue to increase their borrowing and they actively manage their portfolios to maximise their investment gain.
One of the much publicised concerns over the stability of buy-to-let is the fact thousands of amateur landlords are setting up in the market and are not fully understanding what they are getting into. However, this is not necessarily the case as responsible lenders have always recommended investors do their homework before buying.
Part of this homework covers the mortgage. The CML’s report highlighted more than one-third of new advances were remortgages, which indicates that many investors are leaving the traditional lenders in search of lower interest rates. While another new survey of buy-to-let investors’ views on the market and their future plans found overwhelming confirmation that they remained confident in their current investment and the market. Some 63% of those surveyed confirmed they intend to increase their buy-to-let investment in the next two years. Another 18% expected to maintain their buy-to-let portfolio.
There is every reason to remain confident about the market and its prospects, but responsible lenders should continue to apply prudent underwriting. In particular it is important they do not relax the 130% rental cover rule, which provides some protection in the event of void periods. Overall the message should really echo that of Mark Twain ‘ hold the obituary page.
Roger Hillier is product development manager at Mortgage Express