Data released today by the Council of Mortgage Lenders reveals the number of properties being bought with buy-to-let mortgages increased by around 84,000 in 2011.
During the fourth quarter of 2011, a total of 34,800 buy-to-let mortgages (of which 15,600 were remortgages) were advanced, with a total value of £4 billion. This was virtually identical to the volume of business in the third quarter (34,300 loans worth £4 billion) but up on the fourth quarter of 2010 (26,300 loans worth £2.9 billion).
In addition, investor demand for bonds backed by buy-to-let mortgages surged last week by the most in almost two years, according to JPMorgan Chase & Co.
While Britain’s economy may slide into recession in the first quarter and unemployment is at a 16-year high, buy-to-let mortgages are gaining ground as tighter lending conditions keep first-time buyers renting.
Buy-to-let mortgages account for nearly 13% of the total outstanding value of mortgages in the UK, and buy-to-let lending represented nearly 11% of total gross mortgage lending in the fourth quarter of 2011.
“the rationale for buy-to-let remains strong.”
Commenting on the latest data, CML director general Paul Smee said: “Buy-to-let lending continues to perform well. Demand for rented property remains high, so the rationale for buy-to-let remains strong, and there is little reason to foresee any change to this positive outlook for the sector.
“These figures do not suggest that buy-to-let is crowding out first-time buyers; more that it is performing a really important role within the overall housing market. The benefits of the availability of good quality, private rented housing should not be overlooked, especially as there are many households which need the flexibility and mobility that the private rented sector is well placed to provide.”
Low interest rates and rising rents are encouraging investors to put savings into the properties, and falling late payments and lower repossessions have lured back lenders including Yorkshire Building Society and Banco Santander SA that exited the market during the slump.
“It’s the only growth story in the broader market at the moment,” said Jeremy Law, head of buy-to-let lending at Yorkshire Building Society.
22 per cent returns
Gross buy-to-let income returns rose to 5.2 percent last year from 5 percent in 2010 as rents increased, broker LSL Property Services Plc said. That figure excludes debt, the impact of vacancies, late rent payments and property management costs.
An investor with a standard buy-to-let mortgage would get a net pre-tax annual return by 2017 of almost 22 percent, if current conditions prevail and home prices appreciate at the average rate of the past two decades, the Association of Residential Letting Agents projected.
About 25 lenders are offering Buy-to-let mortgages compared with 19 a year ago.