Assetz® News - Arrears in buy-to-let market lower, says expert

Arrears in buy-to-let market lower, says expert

7th March 2007 |

The level of arrears among investors in the buy-to-let market in the UK is much less than in the overall mortgage market, an expert at finance website Moneyfacts.co.uk has said.

Alan Harper, a senior analyst with the site, quoted evidence provided by the Council of Mortgage Lenders (CML) to show that the amount of arrears was just 0.59 per cent and falling at the end of 2006.

This is important to note, Mr Harper states, as the growth of higher loan-to-value (LTV) mortgages being offered in the buy-to-let market has been notable, with eleven lenders now offering deals with an LTV of over 90 per cent.

He said: "This year, in February alone, Alliance and Leicester, Bank of Ireland Mortgages, Freedom Lending and Platform have all launched new products to 90 per cent, whilst Kensington Mortgages has entered the ‘prime’ buy-to-let market with products up to 90 per cent LTV."

Does this mean that lenders are regarding buy-to-let buyers as being higher risk? Not necessarily, he says: "This may suggest that, notwithstanding the increasing proliferation of high LTV products and the risks to lender and borrower alike associated with high loan-to-value borrowing, the basic tenet of responsible lending is not being compromised."

When the CML produced its most recent set of figures last month, it showed how well the buy-to-let market was doing in this regard. The first half of 2006 saw the number of mortgages three or more months in arrears standing at 0.64 per cent and overall mortgage debts at 0.89 per cent, both reasons to reflect on a comparatively healthy trend for the buy-to-let market.

Of course, it cannot be known if, or for how long, the number of arrears will continue to fall, with a whole range of wider economic factors to take into account. A survey by the Association of Residential Letting Agents (ARLA) published this week indicates that the yields on buy-to-let have been restrained by the rate of house price increases, although they have kept pace with inflation. There were also regional differences, average capital values outside the hotspot of London and the south-east actually falling by 0.6 per cent in contrast to the 15.5 per cent rise in the south east and 12.4 per cent hike in central London. However, such a situation may simply concentrate investment in the capital and the home counties and the ARLA survey continued to show that demand is outstripping supply.

There is also the situation with tax to consider. Recent comments by Lee Grandin, managing director of Landlord Mortgages, suggested Gordon Brown should give a capital gains tax break to those buy-to-let investors who decided to sell up, provided they sold to first-time buyers or key workers. Mr Brown may or may not take heed, but even if he doesn't, this is expected to be his last budget and the next chancellor could take a different view. Also, as the buy-to-let market is growing in any case, this will mean greater potential numbers to lobby for change next year.

While these are unknown factors that may influence the strength of the market, however, the fact that arrears are so low adds to the evidence that the market is strong. This in turn improves its chances of dealing with whatever eventualities emerge.