Buy-to-let lending continues to fall

Friday, 20 February 2009 10:15 AM

New buy-to-let lending fell by 12 per cent in the final quarter of 2008, according to research released today.

The Council of Mortgage Lenders (CML) found new lending for buy-to-let in Q4 was down 56 per cent compared to Q4 of 2007.

The CML also found some 2.32 per cent of buy-to-let loans ended 2008 more than three months in arrears.

In terms of repossessions, 0.11 per cent of buy-to-let mortgage payments were taken into repossession in the final quarter of 2008.

Concern raised for tenants in the last few months, who could face eviction with little notice if they are unaware their landlord is in arrears and facing repossession, was quashed by the CML who highlighted that from April 6th all tenants will receive increased notice of any court hearing for mortgage possession (around five to seven weeks).

The CML said tenants need to open any correspondence addressed to 'the occupier', as this is how they will receive notice of any action a lender might be taking against the borrower or landlord.

Lenders send such a notice to all mortgaged properties where they are taking a possession claim to court, whether the mortgage is a buy-to-let mortgage or not.

This means even tenants whose landlords have failed to inform their lender they are renting out their property, which is always a contractual requirement of any mortgage, receive notice of any court action.

Vincenzo Rampulla, public affairs officer at the National Landlords Association (NLA), said: "Although the number of buy-to-let mortgage repossessions doubled in 2008, it is important to remember that we are still talking about less than one per cent of the 1.15 million buy-to-let mortgages out there at the moment.

"The real issue is the big increase in the number of buy-to-let mortgages in arrears. The difficult economic times we are facing mean that speculative investors who decided to try to get rich by dabbling in buy-to-let and are now overstretched will find issues like increasing rent arrears a problem too many for them to face.

"What we are seeing is the buy-to-let market go back to its 2004/2005 era size. Half of the new buy-to-let mortgages in 2008 were long-term professional landlords remortgaging their properties to take advantage of better interest rates."

Keshav Thukaram, managing director of Smartlandlord.co.uk, the property services website for landlords, added: "It is no surprise that the number of people taking out buy-to-let loans has shrunk - there are no lenders left in the market to provide them.

"Providers of buy-to-let loans are either nationalised and throwing landlords off their books, or sitting on their loan books waiting for the securitisation markets to open again. Landlords, like the next generation of aspiring homeowners, can't get mortgages. And with only a negligible social sector to pick up the slack, this begs the question, 'where are people going to live?'

"Unless the government puts pressure on banks to lend, the UK will find itself in a housing crisis.

"Since just under half of landlords own their properties outright, the private rented sector is much more stable than the CML buy-to-let figures suggest.

"Nevertheless, arrears in the sector are rising, particularly as a result of tenants failing to pay their rent. In uncertain times, landlords need to protect themselves against this.

"Buy-to-let lending is not regulated by FSA and constrained by the same TCF framework as lenders to the owner occupied sector, and landlords run the risk of being treated unfairly with lenders repossessing in undue haste.

"With the private rented sector playing an increasingly important part in the tenure of the UK housing market, it is essential that the FSA regulate buy-to-let possessions as tightly as those in the owner occupied sector."

The CML only began collecting data on buy-to-let in 2006, but on the basis of previous half-yearly data, Q4 saw the lowest quarterly lending figure since 2003.

There were 37,000 new loans, worth £3.9 billion in Q4, with outstanding buy-to-let mortgages representing around 10 per cent of all loans, and around 11 per cent of the value of all lending, at the end of 2008.

At the end of 2008 £138 billion was the outstanding value of buy-to-let, compared with £121 billion at the end of 2007.

Commenting of the data, Ian Potter, operations manager of the Association of Residential Letting Agents (ARLA), said: "The contraction in the buy-to-let market will have a very significant impact on the availability of housing stock for the population at large.

"For some time, the government has relied on the buy-to-let market to support its housing plans, but with mortgages increasingly hard to come by that policy is now under threat.

"Buy-to-let investors are often seen as the "lucky few" who can invest during a difficult time for us all. But the simple fact is that they are supporting a rental market which has expanded out of necessity since before the downturn, as households were choosing to rent as a matter of choice.

"Without buy-to-let stock coming onto the market, then we will face a housing shortfall in certain parts of the country that threatens our ability to accommodate the UK's ever-increasing population.

"Once again, ARLA calls upon the government to take action to free up the hamstrung lending process, to ensure that people now and in future generations have roofs over their heads."

Sarah Garrod

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