August 19, 2009
Buy To Let Rebounds
The plunging buy-to-let market has shown the first signs of 'stabilising' with figures today showing only a slight decline in new lending in late spring.
Arrears on buy-to-let mortgages also improved, according to the Council of Mortgage Lenders which claimed: 'The peak in buy-to-let arrears seems to have passed.'
However, total new lending against residential property investment was down 79% on a year earlier.
Around 21,600 new loans were advanced in the second quarter - between April and June - representing a 4% decline from 22,400 in the first three months of the year.
Buy-to-let lenders were hit hard by the credit crunch due the industry's heavy reliance on borrowing from international money lending markets. Those markets jammed up in August 2007 due to fear and confusion about how bad debts were being packaged up and sold internationally. Buy-to-let lending has been falling for two years.
New advances in the second quarter totalled just GBP1.9bn or 5.6% of total gross mortgage lending compared with GBP8.9bn or 12% a year earlier. That represents a decline of 79%. The CML warned that with tighter lending criteria and less equity in properties, it had become more difficult for borrowers to remortgage.
However, arrears showed 'considerable improvement' with 29,400 borrowers behind on payments, a 17% fall from a peak of 35,600 earlier in the year. The CML said lower interest rates had helped landlords, especially given the 'majority' of buy-to-let loans are interest-only, which see larger proportionate declines in monthly payments than repayment loans. The same effect is reversed when rates rise. The improvement comes despite new figures this week revealing unemployment continues to soar, rising to 2.5m in June and a rate of 7.6%, up from 5.4% a year earlier.
CML senior policy adviser Rob Thomas said: 'So long as properties have paying tenants, landlords now have much greater ability to service mortgage payments and we expect arrears to continue to fall as landlords are helped by lower interest rates.
'But healthy rental demand is contingent on a number of factors, including tenants' continued employment.
'Whilst house price falls have limited the scope for some landlords to remortgage, there is no evidence that landlords are exiting the market in large numbers and some landlords have the opportunity to make acquisitions and take advantage of higher yields.
'But new lending to the buy-to-let market will continue to be constrained by the shortage of funding.'
Source: This Is Money
