Many mortgage market observers now believe that where specialist lending is concerned the best chances for growth in 2011 or so will occur in the buy to let market. This would be a remarkable comeback, considering that buy to let was among the first sectors hit by the credit crunch in 2008.
Several indicators appear to support this view. First of all, there is prospective data: interest in obtaining buy-to-let mortgages. Current consumer requests for mortgage advice have increased by nearly a third (32%) from last June. The advice sought also involves a bigger amount they want to borrow. This tells us that there are more people wanting to borrow for buy to let purposes and they are more comfortable with taking out bigger mortgages.
Secondly, there are some actual data. Since June, the availability of buy to let mortgages has increased. Existing lenders have refurbished their product lines. There now are mortgages with 80% LTV on offer; one year ago, there was none. Today, you can look over 99 products with 75% LTV; a year ago, you would find only 65 products.
More significantly, in the last few months to September, several lenders — some returning to the market, and some new ones just entering the market — have opened their windows for buy to let lending. Paragon Mortgages, the third biggest buy to let lender during the housing boom, is one such lender. After a prolonged two-year absence since the credit crunch began, it has returned to the market with £200m of fresh funds for lending.
Paragon recently published its Financial Adviser Confidence Tracker report, which tracks the opinions of mortgage intermediaries. The latest survey found that 43% of broker-respondents believed that there was an improvement in the availability of mortgage finance. This resulted from at least three factors: there were more lenders; there were more buy-to-let mortgage products put on offer; and, there was some degree of easing in lending criteria.
As a group, mortgage brokers now feel more confident about the availability of buy to let mortgages. The survey also found that more than a third (35%) of broker-respondents think there will be further improvements in availability during the next quarter (that is, October to December) while less than one in ten (7%) feel there will be a decline. More than half of them (58%), however, are convinced that mortgage availability will not move much between September and December.
A third factor that will continue to drive demand for buy to let mortgages is the unfilled tenant demand for rental properties. This has already caused significant increases in rental prices in many places in the UK, and more so in London and the southeast. With tenant demand so high (and probably rising), more investors will be attracted to the buy to let market and will arrange to take out more mortgages.
But though the indications of recovery in the buy-to-let market appear clearer these days, there is still a long way to go. Access to finance is still limited by product pricing and relatively tough criteria. It may take a few more months before these, too, will be adjusted to match consumer demand.