Sep 2011- Buy-to-let on the up
There has been a suggestion that landlords are buying first-time buyer properties but actually the rise in buy-to-let mortgage sector has been boosted by remortgaging. Jayne Walters, press officer at the Council of Mortgage Lenders, reports
The CML's buy-to-let mortgage lending figures for the second quarter of 2011, published last month, received twice the amount of coverage usually seen. So why was the sector put in the spotlight? The reason was because, in contrast to the wider market trend, both the volume and value of new buy-to-let lending increased substantially from the first quarter while the number and value of outstanding buy-to-let mortgages also rose yet again.
The number of new buy-to-let loans rose from 27,600 to 32,000 in the second quarter, and a larger increase was seen in the value – up from £2.9 billion to £3.5 billion. Together with the increase in outstanding mortgages, this data appears to show the industry is back in growth after a difficult few years following the financial crisis.
First-time buyers
This is good news for the industry, and might be reported as such you may think? But there have been questions raised by some commentators about the revival of buy-to-let. They believe it means landlords are buying more of the properties that first-time buyers would normally buy, in effect “squeezing out” some first-time buyers from getting their feet on the housing ladder.
So let’s examine that issue.
At first glance, the assertion may appear plausible as there were 11,000 fewer first-time buyer loans taken out in the first half of 2011 than in the same period a year earlier. But, if you look at the figures more closely, you will see that this fall is comparable with the drop in home-mover loans. If buy-to-let borrowers really were displacing first-time buyers wholesale, then the first-time buyer numbers would surely have shown a disproportionate drop to home movers – but they did not. It is also worth noting that the number of buy-to-let loans for house purchase in the first six months actually increased by fewer than 4,000. Much of the growth in buy-to-let lending this quarter was for remortgaging, with landlords getting new mortgage deals on their existing properties, rather than buying new properties. With remortgaging accounting for nearly two thirds of the rise in buy-to-let lending, the idea that buy-to-let lending is crowding out first-time buyer lending appears overplayed.
Funding shortages, government repayment schedules for support, and regulatory changes have left lenders with no option but to set tougher lending criteria on all applying for a mortgage in the wake of the credit crunch. So, the news that many landlords have enough equity in their properties to be able to remortgage should be seen as a positive for the buy-to-let industry, and for the supply of housing more generally.
Arrears
The picture is also looking more positive for the performance of buy-to-let loans, which have traditionally trailed behind the owner-occupied lending sector for the past few years. Between April and June, for the first time in three years, the rate of arrears on all buy-to-let loans (including those under the control of a receiver of rent) was less than the owner occupied sector. Not by much - 0.05 percentage points – but notable nonetheless.
There was one less positive aspect to our figures. The number of repossessions on buy-to-let properties rose 9% in the quarter. However, this only equates to an increase of 200 properties taken into possession, due to the low overall volume of repossessions, despite the wider economic effects of the financial crisis. This is a relatively small number, and there is no immediately obvious reason behind the rise. What we do know is that lumpiness in buy-to-let repossession figures is not unusual, because some landlords tend to have portfolios of properties and if such investors are experiencing payment difficulties, a number of properties in their portfolio are likely to be in the same situation at the same time. If this situation results in repossession, then each property in the portfolio is classed as an individual repossession, pushing the number up for that period.
Summary
On the whole, a positive story is emerging for the buy-to-let sector after a long drawn out period of subdued activity. It has taken more than three years, but the number and value of loans are increasing, landlords are able to remortgage onto better deals and arrears rates are down. The private rented market is currently experiencing a revival but we do not believe that it is correct to blame private rented sector landlords for the current constraints and market conditions being experienced by first-time buyers (and, indeed, existing home-owners).
As we have previously emphasised, a healthy overall housing market should contain a range of housing tenures, with a range of providers in each tenure. The private rented sector is a vital component in overall housing provision in the UK, alongside home-ownership and the social rented sector. Leaving aside the effects of the financial crisis, there is a long standing shortfall in the supply of housing in the UK. Wider provision of housing, irrespective of tenure, is an important goal for the UK, and the buy-to-let market is likely to play an important role in delivering it.
