CML figures showed that advances have been gradually improving since lending levels hit a low of £1.9bn in Q2 2009.
However, despite the recent improvement, lending levels remain a fraction of the record £12.4bn advanced to buy-to-let investors during the third quarters of 2006 and 2007.
Lending in the thrid quarter was up 12% on the previous three months and the CML said the rise was driven by strong ongoing demand for rental property as many first-time buyers struggle to get a mortgage.
Michael Coogan, director general of the CML, said: “We would expect buy-to-let demand to pick up further if current rising rental trends continue and house prices remain broadly stable. However, there is short-term uncertainty as a result of the unresolved debate on housing benefit and landlords’ response to new limits.
He added: “The bigger question is whether there will be sufficient supply side capacity to meet that demand, as the number of buy-to-let lenders dwindled in the credit crunch after 2007 and is yet to be fully restored.”
The CML figures also showed that 1,500 landlords had properties repossessed during the third quarter, 100 fewer than during the previous three months. This represented just 0.12% of all buy-to-let mortgages.
Receivers of rent, an alternative to repossession which enables tenants to continue living in their home, were appointed in 1,300 cases, in line with the previous two quarters.
Around 18,600 mortgages were in arrears of more than 1.5% of the outstanding debt at the end of September, broadly unchanged from during the previous three months.
Nigel Terrington, chief executive of Paragon, said: “The 12% rise in gross advances is encouraging and reflects an increased level of confidence amongst landlords and lenders in the buy-to-let market.
“Tenant demand is extremely strong and the private rented sector needs to expand to cope with the increased numbers of people wanting to live in rented homes.”
“Although we are still a long way from normal market conditions and lending is low by historical standards, the market is heading in the right direction and is growing again,” he added.
