Lending to landlords rising

A bigger proportion of the mortgage market than ever is accounted for by loans to landlords. Figures from the Council of Mortgage Lenders show that 13.4% of mortgage loans were made to landlords in the first quarter of 2013. In the last quarter of 2012, the proportion was 13%. In the first quarter of 2012, it was 12.9%.

Tenant demand

Strong tenant demand is helping to fuel the increase in lending to landlords. And the government’s Funding for Lending scheme has helped drive down rates and increase mortgage availability for landlords in recent months. Government help has also helped increase the number of first-time buyers getting mortgage, but it is still more difficult for them to get a mortgage than it was before the 2008 crash. This has helped keep demand for rental properties high and landlords wanting to borrow.

Just under half of lending to landlords is accounted for by remortgages on existing properties. However, demand from landlords for new properties is strong. Nearly 18,000 new homes were bought by landlords in the first quarter of this year: the highest level since 2008. The increase in lending to landlords is part of a long-term trend of growth for the private rented sector. There are around 1.46 million buy-to-let loans in the UK, three times the number there were a decade ago.

Criticism of landlords

There is criticism from some that landlords are benefiting from government funding while other buyers are still struggling, albeit less than they once were. David Whittaker, of Mortgages for Business, said ““The flow of first-time buyers is still barely a trickle, which is sending the excess demand directly into the rental sector and keeping yields high for buy to let investors.”

However, first-time buyers have benefited from government funding too. The Funding for Lending scheme has helped drive down mortgage rates for everyone, and there are other schemes targeted specifically at first-time buyers and other owner occupiers. Mark Harris, from mortgage broker SPF Harris, said “Undoubtedly, Funding for Lending is playing a significant part [in the growth in lending], pushing down mortgage rates to record lows.”

A good time to buy

It makes sense for landlords (and other buyers) to take advantage of whatever help is available to them. Lower rates and higher rents mean that this is a good time for landlords to buy, especially as government funding will not be around forever. Landlords should, though make sure they calculate all of their costs before buying, and leave some contingency. Maintenance, landlords insurance and other costs can add up to a significant amount. And interest rates have nowhere to go but upwards, and rents may drop.

If you’re a landlord thinking of buying, we say do it now. But do it cautiously.