Buy-to-let is underpinned by a strong set of fundamentals, writes Bob Young, managing director of CHL Mortgages
The latest buy-to-let data released by the Council of Mortgage Lenders makes for positive reading for all those involved in the sector. The figures show the number of properties bought with buy-to-let mortgages increased by around 84,000 in 2011, with 34,800 of them coming in the final quarter of the year. This represents a year-on-year increase of more than 8,000 mortgages and a value rise in excess of £1 billion, showing that the private rental sector is most definitely heading in the right direction.
Of course, these figures are modest when compared to Q3 2007 when quarterly lending exceeded what we now witness over a year, but today’s picture also represents a strong recovery from the market’s nadir in 2009. Buy-to-let currently accounts for 13% of the total outstanding value of mortgages in the UK and around 11% of gross mortgage lending in Q4 2011 which is not to be sniffed at. With a strong set of fundamentals underpinning the sector’s growth this time round, we can look to the future with some optimism, rather than the trepidation of a bubble bursting that lurked in the background in 2007/8.
These fundamentals are everywhere you look. Demand for rented property remains high, meaning yields are strong and void periods are low. Whereas buy-to-let was previously viewed by some in a negative light for squeezing out first-time buyers, it is now regarded as a vital part of the housing supply chain for meeting the housing needs of those who have had their ownership dreams quashed by deposit requirements, affordability issues and an overall lack of available funding. Arrears are also reducing at a pleasing rate from an already low base which also stands the sector in good stead for the future.
Another fillip for the buy-to-let market has been the renewed competition among lenders, a sure sign the sector is on an upward curve. Lenders who previously exited the buy-to-let market are beginning to dip their toes back into the water and a number of new entrants have made their debut. The mutual renaissance has also benefited buy-to-let, as a number of building societies have strong propositions supported by innovative products and keen pricing.
What we have come to think of as the average landlord has changed somewhat over the past few years, but this isn’t necessarily a bad thing. Whereas previously images of shrewd entrepreneurs growing their portfolios by snapping up new-build properties off plan came to mind, today’s typical landlord is just as likely to be a homeowner unable to sell their property who rents it out in the meantime. These so-called ‘accidental’ landlords have now been a feature of the market for a number of years and many are growing comfortably into their roles and have developed a taste for the benefits that the rental sector can bring. Every sector needs new blood and it doesn’t particularly matter how they arrived, more so that they plan to stay.
Our focus at CHL has long been buy-to-let, but we continue to evolve and adapt to market conditions. This has led us to concentrate on the administrative side of the business – both our own portfolio and handling processes for external clients – in the last 12 months or so, but it has proven to be a successful addition to our armoury.
Grey clouds may well be lingering in terms of the economy and wider mortgage market, but the buy-to-let market is certainly a ray of sunshine at present and the long-term forecast is just fine.