Hamptons provides further sign of buy-to-let weakness

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Further signs of weakness in the once-frenzied buy-to-let market emerged yesterday as figures from Hamptons, the estate agent, showed a sharp fall in the sector's share of purchase mortgages (mortgages to buy houses).

Purchases by landlords accounted for 18.4 per cent of Hamptons' mortgage sales in November, compared with 43.8 per cent in October. Buy-to-let remortgages rose by 6.2 percentage points as landlords refinanced existing properties instead of buying new ones.

The buy-to-let sector is keenly watched because it has helped to fuel the housing market in recent years. As house prices start to drop and credit conditions tighten, some analysts fear that a mass sell-off by landlords cashing in their investments could accelerate price falls.

Jonathan Cornell, the managing director of Hamptons Mortgages, said: "While buy-to-let remains a buoyant area to enter into, it appears that some buy-to-let landlords have had their confidence dented as a result of the recent credit crisis. Amateur landlords will have suffered the most and many may have held off from purchasing new properties presumably in the hope that the market will begin to calm."

Mr Cornell said that amateur investors might be sitting on their hands but that professional landlords would stay in the market and could take advantage of bargains as property developers try to shift new homes before the end of the year.

Landlords may be remortgaging their property to reduce their rents and to try to hold on to long-term tenants. Taking advantage of increasing loan-to-values for remortgaging could help them avoid costly void periods in the coming months, Hamptons said.

Analysts at Credit Suisse have warned that Britain's housing market faces a more serious slowdown than many expect if the buy-to-let market dries up. Individual property investors and sub-prime buyers have lapped up about 20 per cent of new mortgage lending in recent years. Credit Suisse said investment buyers would sit out the market as price rises tail off. Reduced lending and higher prices from buy-to-let lenders such as Bradford & Bingley and Paragon could take more buyers out of the market.

But some analysts believe landlords will stay with their investments, tempted by rising rental yields as first-time buyers frozen out of the market choose to rent property.

"Now that the Bank of England has cut the base rate by a quarter point, confidence will hopefully begin to be restored among landlords but it might take some time for this to take full effect," Mr Cornell said.

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