Buy-to-let mortgage market stalls

The recovery in the buy-to-let mortgage market stalled during the first three months of the year (MATT CARDY / GETTY IMAGES)

The recovery in the buy-to-let mortgage market stalled during the first three months of the year, ending three consecutive quarters of lending growth, figures showed today.

A total of £2.9 billion was advanced to investment landlords during the first quarter, 3.5% less than during the previous three months, according to the Council of Mortgage Lenders.

The group said the fall echoed the 11% drop in lending in the wider mortgage market during the same period, as funding remained tight.

The news will disappoint landlords, who have been struggling to extend their portfolios to meet growing demand for rental accommodation.

Figures released by financial information group Moneyfacts.co.uk earlier this week had shown that the number of buy-to-let mortgages available has reached a two-and-a-half year high as lenders returned to the market.

But today's figures suggest the rise in choice is not being matched by an increase in the amount being advanced.

Banks have also failed to loosen their lending criteria, with the maximum loan-to-value ratio they are prepared to advance remaining unchanged at 75% during the first quarter, while the average minimal rental cover requirement is still 125%.

The number of buy-to-let properties that were repossessed during the period rose slightly to 1,700, up from 1,400 in the previous quarter, the equivalent of 0.13% of all loans to landlords - nearly double the proportion of owner-occupied properties which were taken back by lenders.

There was also a slight increase in the number of investors who were at least three months behind with their mortgage, at 22,000.

This rose to 31,800 with the inclusion of cases where a receiver of rent had been appointed - enabling tenants to stay in their home but pay rent to the mortgage lender, not the landlord - the equivalent of 2.24% of all buy-to-let loans.

Michael Coogan, director general of the CML, said: "Buy-to-let continues to progress positively in the context of a stable, but still low-volume, overall market.

"Demand for rental property remains strong, and as more funding becomes available we would expect to see buy-to-let lending increasing.

"The performance of buy-to-let loans is also holding up well, and the differential between arrears rates in the buy-to-let sector and the owner-occupier sector has narrowed substantially so that there is now only a modest difference between them."

Earlier this week rating agency Standard & Poor's warned that more than 30% of buy-to-let borrowers could find themselves owing more on their mortgage than their property is worth by the end of 2012, if house prices drop by 5% this year and a further 5% next year.

The group said investment landlords would be far more affected by the price slide than owner-occupiers, as they typically had higher loan-to-value ratios on their mortgages.