The saying goes that success begets success and the buy-to-let market certainly seems to be growing in stature on a weekly basis at present. The latest confirmation of this fact comes in the form of the recently published CML statistics for Q1 which revealed buy-to-let lending is up by £500m year-on-year and is accounting for an ever larger proportion of the overall mortgage market.
Buy-to-let now accounts for 13.4% of total outstanding mortgage lending and there are nearly 1.5 million buy-to-let mortgages in the UK. This continued growth is partly thanks to strong tenant demand, but the emergence of a couple of new landlord phenomena could also be contributory factors.
The first of these is the appearance of so-called ‘grandlords’. Saga recently reported an 11% increase in the number of individuals renting out property to fund their retirements and Simply Business suggested the number of such older landlords had increased by 33% since 2009.
This trend is hardly surprising given the yields available on other types of investment – not to mention the fact new loans may have length of term issues with the majority of lenders refusing to issue loans to those older than 70 – but it all goes to show how the very idea of their being a ‘typical’ landlord is a thing of the past. It is inevitable that as a sector grows more people will want their own slice of the pie, but in buy-to-let’s case, a convergence of other factors is hastening this burgeoning interest. With the disappearance of final salary pensions and State contributions, falling annuity rates and spiralling living costs, it is no wonder that more older individuals are turning to the private rented sector to help make up the shortfall.
Another trend which has become markedly more popular is let-to-buy whereby borrowers keep their existing home to rent out while they also purchase another primary residence. Brokerage John Charcol suggested the practice had increased by 40% in 2012 and it is a viable way for people to become landlords while establishing a good investment for the future. Care must be taken that the procedure isn’t used to play the system, but assuming this isn’t the case it is as reasonable a method as any to assist the buy-to-let market’s buoyancy. Indeed, as with the case of ‘grandlords’, let-to-buy has increased in popularity as other market forces have reduced alternative options. With the residential property market still far from fluid, many are using let-to-buy to break chains and improve their buying power.
It is probably fair to say that the buy-to-let market would still be going great guns without the emergence of these two trends, but they certainly help supplement the overall picture. With the case of let-to-buy it provides an entry route to the private rented sector to those who hadn’t necessarily considered property as an investment before and as such, could help supplement the supply of new landlords into the system. It is also true to an extent that the buy-to-let market has benefitted from other investment classes declining in desirability, but it is admirable in itself that the sector has been able to thrive amid a period of uncertainty. Either way, it stands the sector in even greater stead for when the economic dark clouds eventually disperse.
Bob Young is managing director of CHL Mortgages
