Buy-to-let lending slows

Buy-to-let lending declined in the first half of 2008, with 144,600 loans issued compared to 176,500 in the second half of 2007, according to the Council of Mortgage Lenders (CML).

The shortage of mortgage funding has limited activity across the mortgage market including the buy-to-let sector, which has a significant number of lenders that rely on wholesale funding.

Despite that, the half-yearly decline has been lower than in the wider market, with the number of buy-to-let loans in the first half of 2008 decreasing by 18% from the second half of 2007, while the number of house purchase and remortgage loans in the wider market decreased by 28%.

The number of buy-to-let mortgages outstanding continues to rise. There are now 1.1m buy-to-let mortgages in the UK worth £132.5bn. This is a rise of 19% by volume and 25% by value from a year ago.

Buy-to-let mortgages represent 9% of the total number of UK mortgages outstanding and 11% of the value of mortgage stock.

On average, lenders offered a maximum loan of 83% of the value of a property in the first half of 2008, down from 85% last year.

Arrears in the buy-to-let market are currently lower than in the wider mortgage market, with 1.1% of loans over three months in arrears, up from 0.73% in the second half of 2007 and 0.63% in the first half of 2007. This compares with 1.33% in the wider mortgage market.

The proportion of buy-to-let mortgages taken into possession is the same as the wider market, at 0.16%.That equates to around 1,800 properties out of a total of more than one million mortgages outstanding. Some landlords are encountering higher mortgage rates, as a result of the credit crunch, while being unable to increase rents in the short term.

CML director general Michael Coogan said: “The shortage of mortgage funding is creating similar problems for buy-to-let landlords as it is for other borrowers. However, we expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now.”