Stable quarter for buy-to-let

Buy-to-let lending in the first quarter of the year fell 11% from the £3bn of lending across 28,600 loans in the fourth quarter of 2010, but was up on the £2.1bn and 22,000 loans in same quarter of last year.

The total outstanding number of buy-to-let loans rose to 1,313,200 at the end of March 2011 from 1,305,000 at the end of 2010 with a rise in outstanding value of buy-to-let lending from £151.5bn to £152bn.

Buy-to-let lending accounts for 12.3% of total outstanding mortgage lending by value, and 11.6% of mortgages by number.

Lending criteria and characteristics saw little changes in the quarter. The average maximum loan to value ratio remained at 75%, with the average minimal rental cover requirement at 125%.

In terms of loan performance, the arrears rate on buy-to-let lending is similar to the owner-occupied sector. As at the end of March, the 3-month arrears rate stood at 1.62% on buy-to-let loans where no receiver of rent was in place, and 2.24% on buy-to-let loans if receiver of rent cases were included. This compares with a 3-month arrears rate of 2.15% in the owner-occupier sector.

The repossession rate on buy-to-let mortgages remained higher than in the mainstream market, as has been the case for a substantial period. This reflects the forbearance efforts in the owner-occupier sector to keep borrowers in their homes, according to the CML. Some 0.13% of buy-to-let loans were subject to repossession in the first quarter, compared with 0.07% of owner-occupied loans.

Commenting, Michael Coogan, director general at CML, said: “Buy-to-let continues to progress positively in the context of a stable, but still low-volume, overall market. Demand for rental property remains strong, and as more funding becomes available we would expect to see buy-to-let lending increasing.

“The performance of buy-to-let loans is also holding up well, and the differential between arrears rates in the buy-to-let sector and the owner-occupier sector has narrowed substantially so that there is now only a modest difference between them.”

Ben Thompson, managing director of Legal & General Mortgage Club, added: “This rise in lending to landlords is very welcome indeed, especially at a time when the first-time buyer market is on its knees. Buy-to-let over-corrected in the recent downturn, with new lending reducing some 80% versus nearer to 60% for the total new lending market.

“If 2011 carries on growing at the forecast rate, new lending figures for buy-to-let will only match levels last seen nearly ten years ago. The positive for this market is we are seeing more lenders enter and this new level of competition will enable the market to grow at a good rate, as all indicators support sustained growth in this market for a good few years to come.”