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Buy-to-let boom covers cracks in mortgage market

Tuesday, 25 October 2011 4:22 PM

The number of mortgage approvals for house purchases fell in September 2011 but a rise in the buy-to-let market has increased gross mortgage lending, according to British Bankers' Association (BBA) figures.

House purchase loan approval dropped to a three month low of 33,130, following the 15-month high in August.

On average the loans are worth £142,600, roughly in parity with last year.

Duncan Kreeger, chairman of West One Loans, said that this equated to a real terms shrink to the mortgage market due to inflation.

Gross mortgage lending reached £8.4bn during September, higher than August or September 2010 however this was in part negated by continued high capital repayment, meaning the increase in mortgage lending was in fact just over £800 million.

Kreeger added that "embattled" high street banks are now looking to recoup equity and are thus lending cautiously to wealthier borrowers with higher deposits.

David Dooks, BBA statistics director, said: "Households are limiting their borrowing in the face of unemployment concerns and pressure on household finances amid general economic uncertainty.

"A modest stimulus to gross mortgage lending is coming from the buy-to-let sector as rental yields continue to improve."

Investors buying-to-let are enjoying a good climate with average rents rising and it becoming increasingly difficult for first time buyers to get onto the property ladder.

Jon Ainge, director of property specialist ipsbmv.com, said: "There is now an unprecedented opportunity for investors to buy property at below market value and benefit from a huge uplift in rental yields which can be used to improve cashflow and bring impressive returns over the long term.

"When I look at alternatives, I don't really see anything that can compete with property at the moment for a reliable return on investment."

The gloomy economic outlook has prompted many to focus on building their savings. In the first eight months of 2011 the BBA say deposits and savings increased by £13.5bn, compared with £21.2 million over the same eight months in 2010.

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