Buy-to-let sales signal end of housing boom

Growth in the buy-to-let property market slowed sharply during the first half of this year, a survey published yesterday showed, which further fuelled speculation that the housing bubble has burst.

Growth in the buy-to-let property market slowed sharply during the first half of this year, a survey published yesterday showed, which further fuelled speculation that the housing bubble has burst.

The number of landlords taking out mortgages slowed dramatically in the six months to the end of June, with UK lenders advancing just 6 per cent more loans during the period, against 50 per cent in the second half of 2003, the Council of Mortgage Lenders said. The report backs up the Bank of England's belief that house-price inflation will tail off. The Royal Institute of Chartered Surveyors said yesterday that house prices froze last month for the first time in a year.

Michael Coogan, the director-general of the CML, said: "The figures indicate that investors are taking a sensible approach and adjusting to tighter market conditions following recent interest rate rises." Minutes due to be published today from the Monetary Policy Committee meeting earlier this month are expected to show that all nine members voted for the fifth 25-basis point increase since November.

During the first six months of the year, landlords took out 119,800 mortgages worth £12bn to buy property to rent out, according to the CML. This was 3 per cent higher than the £11.6bn taken on in the previous six months. At the end of June there were a total of 473,000 buy-to-let mortgages outstanding, with a total value of £46.8bn. Issuing a warning to prospective landlords, Mr Coogan said: "They need to continue to consider carefully the outlook for rental yields and property prices, and take into account taxation, maintenance costs and the possibility of void periods when the property cannot be let."

The CML said buy-to-let lending still represented less than 6 per cent of lending overall, despite growing strongly in recent years. It added that, as with the mainstream mortgage market, remortgaging had boosted buy-to-let lending, accounting for about 35 per cent of total advances during the period.

Arrears in the buy-to-let sector continued to run at about half the level of the mainstream lending market, with about only one mortgage in 240 three or more months behind on payments, it said. During the first half of the year, lenders advanced an average of 80 per cent of a property's value, unchanged from the previous six months, and required rental income to be 30 per cent higher than monthly repayments.

Despite soaring interest rates, a separate report forecast that homeowners would release more than £1bn of equity from the value of their properties during 2004. The value of new equity release plans hit £289m in the second quarter of the year, 7 per cent more than during the previous three months, according to research by Key Retirement Solutions, an independent financial adviser.