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Strong buy-to-let mortgage market ousting first time buyers

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The recent strength in the buy-to-let market is making it increasingly difficult for first time buyers to get onto the property ladder, the Association of Mortgage Intermediaries (AMI) has said.

Buy-to-let investors have benefited from consistently rising house prices because those who cannot afford to gain a mortgage on their first house are forced to rent, pushing up demand.

Figures from the Council of Mortgage Lenders (CML) show that buy-to-let purchases have hit record levels in the past six months. Some 152,500 buy-to-let mortgages were granted in the first half of 2006, up 17 per cent up on the previous half.

Rob Griffiths, associate director of the AMI said: "Buy-to-let investors are competing with first time buyers for the same property… and they are probably in a stronger position." This position has been strengthened by a stable economic environment in which potential landlords have a clearer picture of what long term mortgage they can afford.

"In a sense the rental market benefits from other people's difficulties," said Mr Griffiths. "If first time buyers are struggling to get on the ladder there is more demand for rental property."

Mr Griffiths added that another factor in the high demand for buy-to-let mortgages is that people were beginning to choose to invest in property as part of their pension provision. "A lot of people are expecting a shortfall on their pensions," he explained. "Bricks and mortar have traditionally been seen as a sound investment."

Such competition for mortgages has led the Woolwich to release a new 'life time tracker' deal where the repayments would never rise more than 0.19 per cent above the Bank of England's basic rate.

Andy Gray, head of mortgages for Woolwich said: "Money markets have pushed the cost of short term fixed rates above five per cent so it is making them uncompetitive compared to tracker deals. We expect base rates to peak at five per cent by the end of this year, so tracker deals will still continue to offer better value over the longer term."

The attraction is security for buyers concerned about the varying rate of interest in the future; concern fuelled by the Bank of England's rise of 0.25 per cent earlier this month.

Such deals are of benefit to buy-to-let investors as well as first time buyers, ensuring that the demand for housing continues to grow. Mr Griffiths concluded that an increase in housing supply could be the only long term solution. He said: "We are clearly not building enough houses in this country at the moment; it is a case of trying to get the balance right."

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