The bridging, buy-to-let one-two punch
Bob Young is managing director of CHL Mortgages
It is no secret that buy-to-let and bridging have been two of the major success stories in the mortgage/loans market over the past 12 months, but the correlation between the two sectors is not immediately apparent.
However as mainstream mortgage lenders struggle to cope with the high demand for buy-to-let finance, more and more property investors are turning to short- and medium-term lenders to service their needs. The latest index from one bridging lender says it is this demand that is underpinning the rapid expansion of the short- and medium-term lending industry and describes buy-to-let as the ‘horse pulling the cart’.
There was a time when bridging was stereotyped as useful for those buying at auction and little else but it has evolved into a truly multi-purpose facility and property investors are just one of the demographics reaping the rewards. Despite the fact the number of buy-to-let loans in 2011 was just over a third of what we witnessed in 2007 (124,000 compared to 346,000), banks have struggled to keep pace with the rental resurgence over the past 12 months and have either failed to regain their previous appetite for buy-to-let or found it difficult to justify funding the sector. Bridging has helped plug this gap between supply and demand and supported the buy-to-let market’s ongoing strength.
The high-street mortgage famine on the first-time buyer side of things has also helped the buy-to-let market become more buoyant. With the first step on the property ladder remaining out of the reach of so many prospective buyers, demand for rental properties is strong which has been reflected in an increase in rents. Marry this to the fact that property prices have stayed relatively flat since their initial falls following the Credit Crunch and the stage is set for landlords to thrive in the current environment.
The buy-to-let industry itself seems to have undergone something of an image change too. Whereas previously it was considered by some that property investors were constricting opportunities for first-time buyers by snapping up swathes of new-build properties off plan, it is now acknowledged that these landlords are providing a vital housing service by renting such properties out to those who can’t afford to buy. This softening of attitudes may have something to do with the fact the public no longer appears to perceive the private rented sector to be as much of a threat to first-time buyers given that banks have restricted their lending across the board and not just to first-timers.
From a buy-to-let lender’s perspective, it is positive to see growing competition and variety in the market as the sector wouldn’t be as healthy without it. Indeed, if bridging lenders and the private and overseas banks that have launched into UK buy-to-let hadn’t taken up the slack created by the reluctance of others to lend, then it is doubtful that we would be sitting here today remarking how buoyant buy-to-let currently is. One only has to hope that these new entrants have the industries – and their customers’ – best interests at heart and aren’t just plundering the market while the opportunity is there.
Fingers crossed that the waves made by some of the new kids in town will motivate some of the big guns to dip their toes back into the water as this is vital for the future sustainability of buy-to-let. It’s not quite a case of come one, come all, but we should undoubtedly be thankful for those lenders that are keeping things ticking over nicely.