The prime buy-to-let market has played a major part in my career over the past decade or so, writes Colin Snowdon, chief executive of Aldermore Mortgages.
I’ve charted its development from being the new kid on the block to being a significant and growing sector of the industry in which we all work.
Today, there are 1.26 million outstanding buy-to-let mortgages worth £148.8 billion, or 12% of the total mortgage market by value and 11.1% by number. In quarter two of 2010 there were 24,900 buy-to-let mortgages taken out, of which 14,560 were for house purchase and just over 10,000 were for remortgaging. A significant market by any standards.
Now this is a long way from the 99,500 buy-to-let loans taken out in Q3 2006 but I don’t think anyone doubts it’s a market which is here to stay, despite its flirtations with regulation and skirmishes with the tax man. Increases in capital gains tax have not inflicted any real damage on a market where growth continues to be fuelled by an insatiable demand for private rented housing.
Why? Because as the population continues to grow (it has risen from 56 million in 1980 to 62 million today and is projected to continue growing to 70 million by 2030), the level of owner occupation is not following the same upward curve. Owner occupation has grown from about 55% in 1980 to 70% by the beginning of this decade, but has fallen back to 67% today, meaning that we currently have 14.6 million owner-occupied households in the UK.
Does this mean that we’ve now seen the high water mark of Thatchers’ property owning revolution? Quite possibly. Perhaps more importantly, these statistics raise serious questions about how the current Housing Minister, Grant Shapps, intends to fulfil his promise to ‘work every day to help people achieve their aspirations to own their home’.
The problems created by a growing population have been compounded by a shortage of housing and a slump in the construction sector. We are currently experiencing the lowest level of new housing starts for almost a century, with less than 100,000 new homes being projected to be built in 2010. The previous government estimated that we should be building 250,000 homes a year in order to reach a target of three million new properties by 2020, if an acute housing crisis is to be avoided. Between the first and second quarters of this year the value of new construction orders on private housing projects fell by 24% and government funded housebuilding was down by 23%. Overall, construction activity is forecast to fall 3% during 2010. The truth is that we have never been close to fulfilling the government’s housing building objectives.
Too many people and too few houses a classic recipe for a crisis. And add to that a continued shortage of funding which plagues both the housing and mortgage markets and it’s easy to see why the demand for private rented housing continues to grow unabated. Buy-to-let may be at a low ebb at the moment, but there is every reason to believe in an upturn eventually.
I can therefore understand the dilemma facing Lloyds Banking Group when it recently decided to reduce its exposure to the buy-to-let market. On the one hand the buy-to-let market offers genuine prospect for growth, but with nearly a 50% share of this market, Lloyds may well have felt over-exposed. Although Lloyds decision came as a bitter blow to many mortgage brokers, all is not doom and gloom. As well as new lenders such as Aldermore and Precise entering the market in the past few months, Paragon has also announced a return to the fold sweet news to the ears of professional landlords, I’m sure.
The number of buy-to-let products is also on the increase. Mortgages for Business says the number of deals featured on its sourcing system is now more than 200, up from 40 just over a year ago and Moneyfacts reported in May this year that the total number of buy-to-let deals on its books stood at just over 300, an increase of 125 over the previous eight months. I’m pleased to say that the number of new deals has been increased still further, with the addition of two new fixed rate deals to Aldermore’s buy-to-let line-up: a 5.69% two year fix and a 5.99% four year fix. And other buy-to-let specialists are also announcing enhancements to their product ranges, including The Mortgage Works and Paragon.
Buy-to-let therefore continues to battle on, despite the many hardships thrown in its path. And the positive news for mortgage brokers is that buy-to-let is always likely to be an advised sale.
