Buy-to-let mortgages soar in popularity

Posted on May 10th, 2013 | Categories - News

iStock_000011825116_ExtraSmallThe buy-to-let sector has soared in popularity. According to recent data published by the Council of Mortgage Lenders (CML) buy to let mortgages now make up a record portion of all mortgages in the UK. Last year, buy-to-let mortgages accounted for 12.9% of the market.

However, at the end of March, lending had grown by 0.5%, taking buy to let mortgages to a record 13.4% of the overall market.

The buy-to-let mortgage is growing in popularity, with the rise in popularity due mainly to landlords taking advantage of low interest rates and rising rents.

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Financial experts are quick to point out that the on-going low interest rate environment is having a twin effect on the buy to let mortgage market. Low interest rates on savings account are forcing savers to look for alternatives. Whilst at the same time, mortgage interest rates have fallen to all time low levels, making it cheaper for would-be landlords to purchase property.

However, the rise in popularity of buy to let investing is not good news for everyone. Many first time buyers, who are already finding it hard to get a suitable mortgage, will find themselves having to compete with buy to let landlords for the same house. This increased competition could push up house prices, making it even harder for would-be first time buyers to get on the housing ladder.

Surge in popularity

In the first quarter of this year, a total of 33,500 mortgages have been advanced to buy-to-let landlords, these mortgages have a gross worth of £4.2 billion, according to the new data from the CML.

Currently, there are around 1.46 million buy-to-let mortgages in the UK, accounting for around 13% of the overall mortgage market.

It was also revealed that mortgage arrears were down in the buy-to-let sector. The rate of arrears now stands at 8.3%, 2.2% lower than this time last year and down from 9% last month. Although, repossession rates were higher amongst buy-to-let investors than they were in the owner-occupied sector.

CML Director General, Paul Smee, commented on the figures, he said: “The buy-to-let mortgage market is performing well, against a backdrop of robust landlord and tenant demand for good quality rental property. Loan performance compares favourably with the owner-occupier sector, and buy-to-let continues to grow as a proportion of the overall mortgage market.”

Smee continued: “As the private rented sector looks likely to be the longer-term tenure in which more households may live in the future, lenders are actively looking at how they can best evolve their future lending for those landlords who may wish to offer longer-term tenancies to their tenants – although concrete landlord demand for such borrowing is not yet clear.”

Many mortgage experts are pleased by the recent figures and believe buy-to-let mortgages could be a shining light in a difficult mortgage market. However, other experts are clearly nervous the rise in buy to let landlords could have a negative effect on first time buyers.