Assetz® News - Carry on renting

Carry on renting

27th August 2008 |

The buy-to-let sector has come in for some considerable criticism in recent times, with one major area of attention being the focus on buy-to-let mortgages. While this is far from the only way to fund a purchase - not least for established investors with larger portfolios who may be able to buy in cash - the well-documented reduction in such products is real enough.

Yet despite this, it appears that the market has held up better than the overall mortgage market, which includes home movers, first-time buyers and remortgages.

While all have been affected by the credit crunch, new figures from the Council of Mortgage Lenders (CML) may suggest the sector is more robust than some may think. True, the number of buy-to-let mortgages taken out in the first half of 2008 was down 18 per cent on the equivalent period in 2007, but this was ten per cent less than for all mortgages.

Similarly, while the number of mortgages in arrears was up from 0.73 per cent in the second half of 2007 to 1.1 per cent, this still trailed the 1.33 per cent in the wider market. In the meantime, the loan-to-value average in the first six months of this year was still as high as 83 per cent, compared with 85 per cent a year earlier.

Some may look on such figures as a case of a glass half empty, rather than a glass half full, but one clear fact to emerge from the CML figures is that the total number of buy-to-let mortgages live in Britain at the moment is up on last year by 19 per cent in volume at 1,103,000, while the value has risen by 25 per cent.

That may suggest a healthy present, or if not that then at least the sign of a strong recent past, but what of the future?Reflecting on the figures, CML director General Michael Coogan said he was convinced there is plenty to come from buy-to-let yet. He said: "The shortage of mortgage funding is creating similar problems for buy-to-let landlords as it is for other borrowers. However, we expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now."

Many factors may ensure that is the case, not least in the near future, with interest rates remaining high and constraining house buying through higher mortgages rates, something that may continue for at least a few months until the Bank of England's monetary policy committee is sure inflation is on the wane.

Another factor is that of stamp duty. With no news until November on whether any change to this tax will be applied, the likelihood that people will continue to rent rather than buy may increase. Commenting on this, Simon Preston, chairman of change of address service iammoving.com, said: "The government has caused a lot of anxiety of late about whether they might give relief on stamp duty and obviously that's not going to encourage someone to complete on a house sale in the next couple of months until they come clean on that."

But while stamp duty and interest rates may be passing influences, so too, Bank of England deputy governor Charlie Bean said at the weekend, will the credit crunch be. While he warned that it could be protracted, sooner or later it will end. If the greater resilience shown by the mortgage sector concerning buy-to-let is anything to go by, the rental sector will be in a good position to thrive in the circumstances that emerge when the crunch is over.