Buy To Let Landlords Squeezing Out First Time Buyers
2012 Buy-To-Let Mortgage Numbers Increase By A Third
The Council of Mortgage Lenders (CML) said that 32,300 Buy-To-Let mortgage loans were made over the first quarter of 2012, a 32% increase on the first three months of 2011.
Meanwhile, according to chartered surveyors E.serv, the number of residential property mortgages lent to first-time buyers in April 2012 fell to their lowest level for 9 months. The company said that loans made to first-time buyers in April numbered just 11,307, a drop of 5% from March 2012 and the lowest since July 2011.
Mainstream mortgage lenders are increasingly reluctant to accept applications from First-Time Buyers due to low Loan-To-Value (LTV) rates and the size of deposit required. Instead there is a preference to lend to Buy-To-Let landlords, who are less likely to default on mortgage payments because they are able to utilise specialist Rent Guarantee insurance products to keep cashflow constant.
Richard Sexton, business development director at E.serv, said “Mortgage companies have begun to scale back lending to first-time buyers. Buy-to-let landlords are taking the places of first-time buyers as there is an absence of them in the market place because they can’t get loans. The UK housing market would be in a far worst place than it is now if it were not for the return of buy-to-let landlords”.
Chief Executive of Dragonfly Property Finance, Jonathan Samuels, said “There has been a seriously sharp spike in mortgage loan applications for buy-to-let properties in the first four months of 2012. A shortage of rental stock and strong demand from the growing number of tenants forced to rent will keep driving the sector forward. There’s a lot of portfolio building, as investors continue to add properties to give them increased exposure. People are seeing Buy-To-Let as a pretty stable place to be because residential property prices are falling and mortgage lenders still see lending to owner-occupiers as risky. Investors feel that there’s a lot left in the buy-to-let market and are putting their money where their mouth is”.
However there are warnings that buy-to-let landlords will need to know what they’re doing when it comes to best rental practices and should take appropriate measures to protect their rental income, such as thoroughly referencing tenants and ensuring Rent Guarantee insurance is in place. Landlords should also be prepared for Bank of England interest rates to rise anytime within the next 12 months as the UK struggles to escape the grip of recession.
The CML said that although lending to buy-to-let landlords has grown sharply in the last year, it is still at only 30% of 2007 levels.
With average loan-to-values on buy-to-let mortgages at 75% and average minimal rental cover at 125% it is unlikely that Buy-To-Let mortgage lending will recover to the same levels seen in 2007, as 25% deposits will prevent many amateur landlords from buying rental property.
UK Government Housing Minister, Grant Shapps, said: “We do not have to make a choice between first time buyers and buy to let. We need both. And while a third of all mortgages went to first time buyers last year, only 12% went to buy-to-let landlords. But I’m determined to pull out all the stops for those who want to get on the property ladder, which is why in March the Prime Minister and I launched the NewBuy Guarantee scheme which is expected to enable up to 100,000 aspiring homeowners to buy newly built properties with just a fraction of the deposit they would normally need.”