Quarterly growth in buy-to-let lending

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The value of buy-to-let mortgages taken out in the third quarter of this year amounted to £4.2 billion, an increase of 8% over the £3.9 billion advanced in the preceding three months, according to latest data from the Council of Mortgage Lenders (CML).

The number of loans advanced in the three months to the end of September totalled 34,400, 2% more than in the second quarter of 2012 (33,600).

The value of buy-to-let lending in the first nine months of 2012 amounted to £11.8 billion, 19% higher than the £9.9 billion advanced over the same period in 2011.

However, buy-to-let activity is recovering from a low base and remains subdued compared to the pre-credit crunch era. Buy-to-let lending this year is likely to total a little over one-third of its peak in 2007, the CML said.

The balance between buy-to-let lending for house purchase and remortgaging in the third quarter remained broadly unchanged. Lenders advanced 18,680 loans for house purchase (54% of the total) and 15,360 for remortgaging (45%). By value, lending was evenly split, with £2.03 billion advanced for house purchase and an identical sum lent for remortgaging.

The average maximum loan-to-value available on buy-to-let mortgages remained at 75%, with an average minimum rental cover of 125%. Both measures have remained largely unchanged for more than three years.

The stock of buy-to-let mortgages continues to grow. At the end of the third quarter, the number of outstanding loans totalled 1,444,000, worth £164.3 billion (up from 1,414,000, worth £162.5 billion, at the end of the second quarter, and from 1,367,000, worth £156.7 billion, a year earlier).

As a proportion of the mortgage market overall, buy-to-let lending remains lower than in 2007 and 2008. Despite the fluctuating fortunes of the mortgage market in the last few years, the market shares of three distinct groups of borrowers – buy-to-let investors, home movers and first-time buyers – have remained broadly stable.

“Buy-to-let lending is continuing to recover, and to grow in line with expectations,” said CML director general Paul Smee.

“As well as continuing to fund owner-occupation, lenders are contributing to the expansion of a strongly growing rental sector, helping to deliver choice and mobility for tenants.

“The growth of private renting looks set to continue in the years ahead, and lenders are committed to playing a full part in the debate about how best to meet the evolving needs of tenants in the future.”

Dan McLeod, director, Atkinson McLeod estate agents, said: “Rumours that buy-to-let has run out of steam have proved to be exactly that.The demand from investors for buy-to-let has never been stronger.

“These days, it’s a more sensible type of investor that’s moving into buy-to-let – the buy-to-let investor of old. The casino approach to buy-to-let, where people were simply betting on short-term capital appreciation, is a thing of the past.

“Landlords are increasingly taking a 10-year view and are focused on rent and yield, which is what they should always have done.”

He added: “Why is the demand for buy-to-let so strong? The answer is yield. Property prices in many areas of the UK are weak, offering a good buying opportunity, while achievable rents due to strong demand are very high.

“Meagre rates on deposit are also driving more and more people back to bricks and mortar. They need returns and decent returns in the current climate are not readily available.

“The lack of appetite on the high street for first-time buyer loans continues to bolster buy-to-let. If people can’t buy, they invariably rent.”

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