Lenders focus on the future of buy-to-let
Published: 14 November 2012 | Author: Bernard Clarke
Funding for housing in all tenures was a key theme of our recent annual conference, with the latest data showing an increase in lender provision of finance for the burgeoning private rented sector.
The value of buy-to-let mortgages advanced in the third quarter totalled £4.2 billion, an 8% increase over the £3.9 billion advanced in the preceding three months, according to data we published the day after the conference. The figures confirmed the continuing strong recovery of the buy-to-let sector.
The growth in lender finance for the private rented sector means that firms are helping to deliver a wider choice and increased mobility for the growing number of tenants in the UK. We expect lenders to continue to contribute to the growth of the sector, in an era in which we are likely to see a significantly higher level of private renting than in the recent past.
As the private rented sector continues to grow, lenders are exploring ways in which buy-to-let could evolve to meet the wider needs of tenants. Discussions are continuing with groups representing tenants and landlords, as well as with other interested parties, but we need wider agreement on what modifications are necessary to make tenancies work in the longer term. Agreement is also needed on a wide range of other issues, including the maximum length of tenure, how rents might be set and reviewed, and how break clauses could operate in longer-term tenancies.
Meanwhile, our data showed that the value of buy-to-let lending in the first nine months of 2012 totalled £11.8 billion, 19% higher than the £9.9 billion advanced in the same period in the preceding year. Buy-to-let activity is, however, recovering from a low base and remains subdued, compared to the pre-credit crunch era. Lending this year is likely to total a little over one-third of its peak in 2007.
But the stock of buy-to-let mortgages continues to grow. At the end of the third quarter, there were 1,444,000 buy-to-let loans outstanding, worth £164.3 billion (up from 1,414,000, worth £162.5 billion at the end of the preceding quarter, and from 1,367,000, worth £156.7 billion, a year earlier).
The split between buy-to-let lending for house purchase and remortgaging remained broadly unchanged in the third quarter. Lenders advanced 18,680 loans for house purchase (54% of the total) and 15,360 for remortgaging (45%). By value, lending was evenly spit, with the £2.03 billion advanced for house purchase matched by a similar sum for remortgaging.
Buy-to-let lending criteria have remained virtually unchanged for more than three years. The average maximum loan-to-value ratio remains at 75%, with an average minimum rental cover of 125%.