New mortgage lending to buy-to-let investors has fallen for the first time, data showed on Monday, suggesting an end to a boom that has shored up the UK property market.
The findings signal support is crumbling at the lower end of the housing market, where buy-to-let investors have been replacing potential first-time buyers.
The Council of Mortgage Lenders said lending to buy-to-let investors was 18 per cent lower in the second half of 2004 than in the first half, the first fall since 1999, when data on this relatively new mortgage form were first collected. Mortgage lending for general home purchases fell 3 per cent in the same period.
Sabina Kalyan, property economist at Capital Economics, the consultancy, said: "We have seen a stark weakening in buy-to-let investment which suggests that the last support for the bottom end of the housing market is breaking away dramatically."
Any weakening in demand among buy-to-let investors is likely to feed through to the rest of the property market, where chains starting with a one-bedroom flat can ultimately determine whether a detached family home is sold.
In the wider market, estate agents and surveyors remain pessimistic about the prospects for house prices, the Royal Institution of Chartered Surveyors will say on Tuesday. On balance, its members reported falling prices for the sixth month in a row in January and predict further declines ahead.
However, the latest government data, which measure completed transactions rather than asking prices or mortgage sizes, on Monday showed that on average UK house prices hardly moved in the second half of last year. Prices fell 3 per cent in London and at the higher end of the market.
Buy-to-let investors have continued to buy smaller flats as prices have climbed beyond the reach of those looking to enter the housing market.
Milan Khatri, head of economics at the Rics, said: "Because they were able to put down the necessary deposit which young people could no longer get together, buy-to-let investors shored up the low end of the market and thereby played a crucial role in sustaining the recent housing boom."
At the end of 2004 there were an estimated 526,200 buy-to-let mortgages worth £52.2bn, a 34 per cent increase in value over the previous year. Buy-to-let lending continues to account for 6 per cent of total outstanding residential mortgage lending.
New lending in the second half of 2004 was an estimated £9.8bn, 18 per cent lower than the £12bn in the first half, and 16 per cent lower than the £11.6bn in the second half of 2003. However, at £21.8bn, total residential investment lending for 2004 as a whole was still 14 per cent up on 2003.
Andrew Heywood, senior policy adviser at the CML, insisted that buy-to-let investors were unlikely to engage in panic-selling. "Our research suggests that buy-to-let investors are largely holding on to their existing portfolios, but are making fewer acquisitions. Most have a long-term interest in the market."
