Bob Young, managing director of CHL Mortgages
While the buy-to-let sector has certainly enjoyed something of a turnaround over the past year or so, the latest figures from the Council of Mortgage Lenders represented a reality check to any landlords who might have been getting carried away. The data showed that lending in the first quarter of 2012 totalled £3.7bn across 32,300 loans which is a 5% decrease on the figures from the final quarter of 2011. This also means that buy-to-let lending remains at a third of the heady heights experienced in 2007.
Nevertheless, despite this downward tick, the Q1 2012 results still represent a massive improvement from the corresponding period in 2011. The 32% year-on-year increase admittedly came from a rather modest base, but still shows that the market is moving in the right direction and at an impressive rate of growth too. This renaissance is also making its presence felt in the wider market too, with buy-to-let mortgages increasing their share of the overall market to 12.8% of the total value of outstanding mortgages, a 0.6% annual escalation.
Loan to value and minimum rental cover averages remained broadly stable at 75% and 125% respectively, but arrears maintained their steady improvement. At the end of the first quarter just 1.7% of buy-to-let mortgages were in arrears of more than three months, meaning they again outperform the owner-occupier sector where 2% of borrowers are behind with their home loans. Repossessions remain at the steadily negligible rate of 0.12%, a figure that has hardly budged since 2010.
Pessimists may consider the 5% slump a blow and taking a short-term view it is easy to see why, but when placed in the context of how far the buy-to-let market has come in the past 12 months, it is easy to dismiss as nothing more than a temporary setback. The beginning of the year is traditionally a quieter time of year as landlords plan their next move, so it is not worth reading too much into what is only a minor aberration. From what I hear anecdotally from other lenders and from property agents themselves, there is nothing to suggest that underlying tenant demand is set to slow down, so there is no cause for concern at all.
Judging by our latest landlord survey, it would appear that modern property investors are a pragmatic bunch and don’t get too excited by growth spurts or too downhearted by dips anyway. Just shy of three-quarters of those we polled remain positive about the sector’s prospects and 59% plan to neither expand nor decrease the size of their portfolios in the coming year, which may go some way to explaining the levelling off of the market. More than half of landlords felt tenant demand had remained stable in the past six months, while 41% felt it had improved, suggesting that yields will stay high and void periods low.
Perhaps the most telling statistic to emerge from our survey in light of the CML results is the fact that 66% of landlords still rate their buy-to-let investment as a stable, resilient concern, while 28% state their portfolio may be vulnerable to any future interest rate rises. Far from implying that landlords are starting to worry, it simply suggests that the new breed of landlord has considered all eventualities and is willing to act accordingly. The buy-to-let boom prior to 2007 was undoubtedly exciting, but it also led to some landlords taking their eye off the ball and over-expanding by investing recklessly. The current crop has learnt its lesson, are cautiously optimistic and are unlikely to be deterred by a 5% quarterly correction.