Assetz® News - Scratching below the surface

Scratching below the surface

4th June 2008 |

The buy-to-let market has taken plenty of bad press in recent times, yet the industry remains convinced the future is not half as bleak as some suggest.

Some may respond to this fact with the comment that "they would say that, wouldn't they?", but this may be an unduly cynical view; the analyses being offered by the industry are generally acknowledging that difficulties have occurred, but that new opportunities exist.

An example of this kind of analysis may be the comments on the BBC news website's Money Talk by Jonathan Moore of Mortgages for Business. Mr Moore acknowledged that the credit crunch has had a significant impact, with a large reduction in the availability of buy-to-let mortgages, higher repayments rates driven by higher interbank (Libor) lending rates and increased deposits.

Mr Moore added: "By making these moves, lenders are deliberately positioning their loans to attract just those "prime" borrowers, eliminating those who they deem to be risky."

Yet, he stated, there are still clear advantages for some investors in property who "scratch below the surface" to examine the situation. The main one is that rents and demand for buy- to-let accommodation have increased, for the obvious reason that just as buy-to-let mortgage lending has been affected by the credit crunch, so too has residential buying, meaning first-time buyers find it harder still to get on the ladder and therefore look to rent instead.

Mr Moore concluded: "The market currently favours larger investors, and those with cash in the bank are able to snap up competitively valued homes and build up their portfolio."

In fact, the demographic of buy-to-let is mainly comprised of this group, new research has shown. Today, Easier Property reported that research by property firm Hometrack showed that 82 per cent of property is owned by landlords who have ten or more properties in their portfolio.

The defence of buy-to-let against claims that the party is over has had to be made again this week, following news that buy-to-let mortgage lender Bradford & Bingley had suffered losses of £8 million. One of the elements of the lender's downturn in fortunes was a 52 per cent rise in the number of buy-to-let investors in arrears of at least three months during the first four months of 2008.

Yet this figure, while comprising the stuff alarmist headline writers might dream of, does not tell the whole story, the Council of Mortgage Lenders (CML) has shown, 24dash reported earlier this week.

The CML pointed out that this rise had been from a very small base, with the actual number of repossessions of investors with buy-to-let mortgages in the first quarter of 2008 rising by 0.15 per cent from the previous quarter's figure of 0.12 per cent.

Commenting on the situation, CML spokesperson Sue Anderson said: "There has been some worsening in defaults, but no worse than we would expect and from a very low base.

"We still see buy-to-let performing pretty well, and we are not seeing any evidence that that is not the case."

Malcolm Harrison, spokesman for the Association of Residential Letting Agents, added that those who were in difficulty were probably those investors given bad advice before they set out.

So for all the headlines in some quarters, below the surface it appears that the tales of woe for some, however bad they may be, are those of the minority.