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Ray Boulger: No let up from Let-to-buy

Robyn Hall

April 23, 2013

“Our experience is that the popularity of let-to-buy has been progressively increasing since the nadir of the buy-to-let (BTL) sector in 2009.

“I think this is primarily attributable to home owners’ renewed confidence in the housing market, coupled with the increasing demand for rental property.

“This view is supported by another trend we have seen over the last few months – an increasing number of expats buying one or more investment properties in the UK.

“Confidence in the BTL market appears to be gaining more traction as a result of ongoing falls in mortgage rates coupled with steady or increasing rental values.

“Thus, even ignoring the possibility of a geared capital gain in due course when the property is sold, the annual return from an investment property has improved significantly over the last few years at a time when savings rates have fallen sharply.

“When John Charcol launched the very first buy-to-let mortgage in 1996 even we didn’t foresee just how popular such mortgages would become.

“BTL has been far and away the strongest sector of the mortgage market since the whole market reached its nadir for gross lending at £135.3bn in 2010.

“When gross mortgage lending peaked at £362bn in 2007, BTL accounted for 12.3% of lending.

“However, it then fell away even more rapidly than mainstream lending and in 2009 was just 5.9% of the market.

“We believe the main reasons for this were the national and global economic situation and in particular lack of confidence in the housing market, coupled with a particularly severe squeeze on BTL mortgage availability. In 2009 we estimate that just two lenders accounted for 80% of all BTL lending, as many lenders withdrew from the market.

“There have, as is normal, been substantial regional variations in house price performance over the last few years, with some London prices now surpassing their previous peak in 2007, whilst at the other extreme prices in Northern Ireland are still 52% below their peak, despite some recovery in the first quarter of 2013.

“London has by far the smallest proportion of owner occupation in the UK and hence also the highest property of rental property, with the private rental sector, and hence BTL, having expanded rapidly in recent years.

“The strength of the property market in London, coupled with the strong demand for rental properties in the area, has resulted in London being seen as particularly attractive for Let-to-Buy.

“The BTL market has been the driver of the recent modest increase in gross mortgage lending and from 2010 has increased steadily, culminating in gross lending of £16.4bn in 2012, representing 11.5% of the total market.

“Although Let-to-Buy only accounts for a modest part of this increase some homeowners obtain permission to let from their mortgage lender, thus retaining their existing residential mortgage, rather than remortgage to a BTL deal.

“Thus the total number of mortgages supporting the BTL market will be in excess of the Council of Mortgage Lenders (CML) figures, primarily as a result of a proportion of homeowners choosing to Let-to-Buy but retain their residential mortgage.

“The proportion of our clients choosing Let-to Buy when they were moving home fell year on year by 37% in 2009, the same year that BTL lending generally hit rock bottom.

“However, the subsequent bounce back has been even more pronounced than in the BTL market generally.

“We saw an increase of 45% in Let-to-Buy lending in 2010, modest growth of only 10% in 2011 and then a further surge last year with an increase of 40%.

“Let-to-buy really is providing a great option for many borrowers at a time when the market can hardly be described as fluid.

“But it is primarily the preserve of those borrowers who have an independent mortgage adviser on their side.

“Typically, if you visit a high street lender, due to the somewhat prescriptive way most enquiries are dealt with, there is very little chance that this option would even be discussed, let alone explored with any degree of seriousness.

“Yet, if you are looking to improve your buying power, limit your stress, take control of when you sell and/or boost your retirement income, then for some people let to buy is a genuinely compelling solution.

“The vast majority of our let-to-buy clients are choosing either a mortgage with no early repayment charges, giving them complete flexibility on marketing the property and the timing of the sale, or a 2-year fixed rate.

“The former particularly suits those who are specifically using let-to-buy as a form of chain breaker where they have been let down by a purchaser or have seen a property they are keen to buy but can’t sell their existing home quickly enough to be confident of securing the purchase.

“The latter suits those who want to test out being a landlord before being committed long term.”


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