Buy-to-let lending rise boosts sector

Buy-to-let lending grew for the second consecutive quarter during the final three months of 2009 as the market continued to show signs of improving, figures showed today.

A total of £2.4 billion was advanced to investment landlords during the three months to the end of December, 14% more than during the previous quarter, according to the Council of Mortgage Lenders (CML).

But the figure was still well down on the £4 billion that was lent during the same period of 2008.

The group added that the growth seen during the past six months was also from a very low base, after the market contracted for seven consecutive quarters up to the end of June last year.

Just 93,500 mortgages were advanced during the whole of 2009, less than half 2008's figure and well down on the 346,000 loans advanced in 2007.

There was also a steep drop in the total value of lending, which at just £8.5 billion was dwarfed by the £27.2 billion and £44.6 billion lent in 2008 and 2007 respectively.

The buy-to-let sector has been hit hard by the credit crunch, with many lenders withdrawing from the market altogether, while others have struggled to raise the funding they need for mortgages.

The steep fall in advances to investment landlords has caused buy-to-let lending to contract to account for just 5.9% of all mortgage advances during 2009, after representing 12.3% of the mortgage market in 2007.

CML director general Michael Coogan said: "The figures show that the buy-to-let market continued to improve, albeit slowly, throughout 2009, and we are encouraged by this recovery.

"The new business market remains well below previous levels though, and below the level of activity which is needed to enhance a vibrant private rental sector in the UK.

"We are concerned that future, wrongly directed, regulation may actually prevent buy-to-let playing its vital role in providing good quality homes and wider housing choices for people who cannot afford home ownership or do not qualify for social housing."

As is the case in the wider mortgage market, the majority of buy-to-let lending during 2009 was to landlords buying a new property, rather than to those remortgaging.

Lending for the purchase of a property accounted for 60% of advances to the sector during the year, up from 46% in 2008.

Investment landlords have been deterred from remortgaging due to a combination of the high deposits lenders are currently demanding, as well as the low interest rates they revert to when their existing mortgage deal comes to an end.

The low level of interest rates has also helped to keep down arrears levels in the sector.

Around 20,700 landlords were in arrears of at least 1.5% of their outstanding mortgage debt at the end of last year, 37% fewer than in December 2008.

A total of 1,200 properties were repossessed during the final three months of the year, 25% less than during the third quarter.

But for the year as a whole, 5,700 properties were taken over by lenders, up from 3,400 in 2008 and the highest level since the CML's records began in 2005.

There were also 8,600 receivers of rent appointed during 2009 - an alternative to repossession that enables tenants to stay in their home, but pay their rent to the mortgage lender rather than the landlord - up from 7,900 in 2008.

Ian Potter, operations manager of the Association of Residential Letting Agents, said: "The contraction of the buy-to-let market in the past year will have a significant impact on the supply of stock within the private rented sector.

"There is some light at the end of the tunnel, with buy-to-let lending increasing for a second consecutive quarter at the end of 2009.

"However, 48% of landlords surveyed by ARLA say that they do not expect to acquire more buy-to-let properties during 2010. This is a stark reminder of the lack of available mortgage finance despite the billions (of pounds) of public money poured into the banking sector."