Rise in buy to let lending as landlords bank healthy returns

New figures have found that the buy to let mortgage sector in the UK is booming. Lending for investment properties rose by 8 per cent in the three months to September 2012 with the market almost a fifth bigger than it was this time last year. High value buy to let mortgage borrowers are reaping the benefits of excellent returns. Yields on investment property remain high, as we see after we look at the state of the UK’s buy to let mortgage market.

Buy to let lending up by nearly a fifth in the last year

Data from the Council of Mortgage Lenders shows that the value of buy-to-let mortgages taken out in the third quarter of 2012 totalled £4.2 billion. The Daily Telegraph reports that this is an increase of 8 per cent over the £3.9 billion advanced in the preceding three months.

The number of loans advanced in the three months to the end of September rose by 2 per cent, from 33,600 to 34,400. The total value of buy-to-let lending in the first nine months of 2012 amounted to £11.8 billion, almost a fifth (19 per cent) higher than the £9.9 billion advanced over the same period in 2011.

Islay Robinson, CEO of London mortgage advisor Enness Private Clients, said: “Many of our high value mortgage clients are turning to buy to let in the current climate. Property prices are low, and the lack of supply of residential mortgages means that there is strong demand for rental properties from people who can’t buy their own home.

“However, while I welcome the growth in buy to let lending, it is worth remembering that the market still remains very slow when compared to the pre credit-crunch years. Lending to investors in 2012 will only be around a third of what it was back in 2007.”

Just over half the buy to let mortgages advanced in the three months to September 2012 were for house purchase (54 per cent) while the remainder were remortgages.

The newspaper reports that the average maximum loan-to-value available on buy-to-let mortgages remained at 75 per cent, with an average minimum rental cover of 125 per cent. This means that the rental income from the property must equate to at least 125 per cent of the mortgage payment.

Paul Smee, of the CML, said: “Buy-to-let lending is continuing to recover, and to grow in line with expectations. As well as continuing to fund owner-occupation, lenders are contributing to the expansion of a strongly growing rental sector, helping to deliver choice and mobility for tenants.

“The growth of private renting looks set to continue in the years ahead, and lenders are committed to playing a full part in the debate about how best to meet the evolving needs of tenants in the future.”

Mr Robinson, the London mortgage broker, added: “The high net worth finance clients who have invested in good quality buy to let property in recent years are reaping the rewards. With tenant demand strong thanks to a lack of first time buyer mortgage products, gross yields on property are rising.

“Buy to let yields increased from 6.1 per cent in the three months to June 2012 to 6.7 per cent in the most recent quarter. Compared to returns from other asset classes, high value mortgage clients are increasingly interested in the benefits of buy to let.”