If any further proof were needed that buy-to-let is the place to be at present, the latest gross lending statistics published by the Council of Mortgage Lenders provided it in abundance. At £16.4bn, the final figure for 2012 not only represented a 19% increase on 2011, but also denotes the sector’s strongest performance in four years. The market may have shrunk somewhat since the £45bn advanced in 2007, but the present position must be considered in the context of the wider economic condition.
A more useful indicator of the private rented sector’s relative size is that at its peak in 2007, it accounted for 12.6% of total gross mortgage lending. The current figures show that buy-to-let is now responsible for 11.5% of all home loans and, with residential lending continuing to show only small growth, there is every chance a record market share could be registered this year. In much the same way as we convert house prices of yore into ‘today’s money’, so the buy-to-let sector’s performance is placed into clearer perspective when factoring in the wider market decline during the global financial crisis.
Like a snowball gathering size and momentum as it rolls down the hillside, a number of dynamics have converged to ensure the buy-to-let market has enjoyed such a strong recovery from the dark days of 2009. But while factors such as increased competition, enhanced product availability and falling first-time buyer levels have been well documented, one influence that is often overlooked is low-paying savings accounts. Individuals putting money away for a rainy day have had a tough time of things ever since the Bank Base Rate fell into its current trough, but this plight has been exacerbated not only by capital adequacy requirements but also potentially by then Funding for Lending scheme.
Savings rates dropped by 1% between the programme’s launch in the summer and the end of 2012 and to many observers this is no mere coincidence. Bad news for those trying to build a nest egg; good news for the private rented sector as individuals who previously would have diverted their money into savings accounts are now investing in property as a more lucrative option. Add into the equation investors disillusioned and averse to the risk currently posed by the stock market and it is not difficult to see why bricks and mortar has become the solid investment it was viewed as prior to the credit crisis.
Personally, I would settle for annual gross buy-to-let lending remaining a relative shadow of 2007’s levels as long as it is still accounting for a healthy overall market share – as it is now – and providing its practitioners are learning from the mistakes made by their predecessors. Size isn’t always everything and it is far better for all concerned if we have a leaner yet more robust market than the juggernaut that risked lurching out of control back then. A lot has changed in the last five years and although it may have not seemed likely at times, the buy-to-let market could yet emerge one of the real victors once the economy eventually turns the corner.
Bob Young is managing director of CHL Mortgages
