Assetz® News - A different perspective on buy-to-let

A different perspective on buy-to-let

1st October 2008 |

It's official, scream the headlines. Buy-to-let is dead. While just a few months ago an actress wearing the company trademark bowler hat was appearing in an advert for buy-to-let mortgages, Bradford & Bingley is now being nationalised and the whole industry is being portrayed as having just had the last nail hammered into its coffin.

Yet the reality, it appears, may be just a little different. Irked by the headlines and the coverage of recent days, major bodies involved in the sector have been quick to hit back with a somewhat different tale.

The first of these was the Council of Mortgage Lenders (CML). Responding on Monday to the announcement of Bradford & Bingley's shift into public ownership, the CML stated: "Today's coverage so far could leave the impression that the performance of buy-to-let mortgages generally has been far worse than the market as a whole. This is not the case."

Nor was this just an assertion. The CML published figures to reveal that in the first half of 2008 the number of buy-to-let mortgages in arrears of three months or more was 1.1 per cent, compared to 1.33 per cent for the residential market. At the same time, the number of these situations ending in the ultimate sanction of repossession was no different between the two mortgage types, both being a rate of 0.16 per cent. (It added data showing that Bradford & Bingley's arrears figures were much higher).

So the evidence of the CML figures suggests that buy-to-let mortgages are no more troubled than other parts of the market. But for the National Landlords Association (NLA), the issue goes further.

Responding yesterday to assertions that the buy-to-let sector is doomed, the body pointed out that, in any case, only 25 to 30 per cent of buy-to-let investments are made using such a mortgage. Therefore even if there was not a single buy-to-let mortgage available anywhere in Britain, this would still not affect the majority of investors.

Moreover, the NLA added, a number of factors should carry on bolstering the market. In particular, demographic changes such as immigration, higher student numbers and the high level of people living alone as they marry later and divorce more are all trends that should maintain a high level of demand for rental property.

Other factors the body noted was the long-term approach of most investors, who tend to hold their portfolios for 15 years or more, plus the lack of increase in social housing provision, meaning more will look to the rental sector.

Summarising these points, NLA head of communications Simon Gordon said: "It is simply not true that the nation's landlords are now facing some sort of crisis. For the cautious and mature investor who has bought the right property in the right location, they will be seeing an increase in rents and can expect demand to keep climbing."

Mr Gordon added that those landlords who are having problems "may well be the more recent entrants with more highly geared portfolios".

So while the news about Bradford & Bingley may be particularly bad for its shareholders, impose a new burden on British taxpayers and raise more questions about the state of the banking system, its effect on buy-to-let may be somewhat less than some have suggested.