Buy-to-let market sees signs of improvement

The battered buy-to-let market has risen from its slump, but economists remain sceptical of a full recovery.

In September this year the number of products available to buy-to-let investors fell to a record low of 179 but by October this number rebounded to 239, according to a report published on Monday by Moneyfacts.co.uk .

The figure is nowhere near its peak in August 2007, however, when the number of these loans on the market hit a staggering 3,662.

It is thought that the recent recovery in the UK housing market has been the main trigger for lenders to launch new products but economists remain cautious.

“We have seen some positive signs from the buy-to-let market in recent months with a considerable improvement in arrears and an increase in products and lending activity,” said Paul Samter, an economist at the Council of Mortgage Lenders.

But because activity is low by historical standards he said he doubts that the improvement can continue. On top of that, landlords still face trouble in securing a competitive deal.

“While there have been signs of life in the wholesale funding markets, overall funding conditions remain difficult and buy-to-let lenders are among those facing some of the biggest challenges in raising mortgage funding,” Mr Samter said.

In 2007, 52 per cent of total deals required a deposit of just 10 or 15 per cent. Today, there are no such deals available.

“Numerous buy-to-let lenders have pulled out of the sector, while many of the remaining lenders restricting the number of deals on offer, making it harder than ever for landlords to find a competitive mortgage,” said Michelle Slade of Moneyfacts.co.uk.

The buy-to-let sector became very popular five years ago when financing was less tight. Landlords interested in making extra income would mortgage a property that they would lease to other tenants.

When the subprime mortgage bubble burst, falling house prices eventually eroded the equity in these properties, leaving landlords with a broken and battered market.

In the current economic climate this market is viewed as being somewhat risky and is priced as such by lenders who have kept the average two year fixed rate loan at 5.71 per cent in spite of the move by the Bank of England base rate.

Another major concern is a second dip in prices, which some economists expect to occur next year once the housing recovery loses its steam.

Seema Shah of Capital Economics said there are no clear signs that the BTL market will improve, since lenders do not appear enthusiastic about easing their lending criteria. “With unemployment rising and first-time buyers facing difficulty in securing financing, it’s difficult to imagine why landlords would get a mortgage.”

However, Darren Cook of Moneyfacts.co.uk said a couple of providers have increased their range of products, such as Bank of Scotland and The Mortgage Works.

“The lack of availability of buy-to-let mortgages has been one of the big casualties of current financial crisis as providers started to reel in their credit criteria. This is a small good news story for BTL customers as increased choice can only be positive.”

Mr Cook said the future state of the BTL market will also depend on where the Financial Services Authority (FSA) places it in the mortgage market review.

Date	Number of BTL products available
August 2007 (peak)	3,662
2 years ago	1,942
One year ago	308
September 2009 (low)	179
Today	239

Source: Moneyfacts.co.uk