Buy-to-let market continues to slow

The number of mortgages advanced to buy-to-let investors fell in the first half of 2005 to reach its lowest level in two years, according to the Council of Mortgage Lenders (CML).

The CML said 93,400 buy-to-let loans were paid out in the first six months of this year, down 4% on the 97,800 completed in the second quarter of 2004 and 22% below the peak of 119,900 recorded in the first six months of last year.

The total amount borrowed was up slightly on the previous half's figures, standing at £9.9bn, compared with £9.8bn. However, total advances were below the £12m recorded in the same period last year.

Despite the slowdown in new borrowing, the sector has continued to expand and at the end of June it was worth £63.5bn and represented 7% of all residential mortgage lending.

At the end of the first half there were more than 10 times as many outstanding buy-to-let loans as in the same period 1999 - 632,100 compared with just 58,800 six years ago.

In common with the rest of the mortgage market, problems with repayments have grown this year, with the CML recording 0.7% of loans as being at least three months in arrears. This is up from 0.66% in the previous half and almost double the figure for the first six months of 2004, when just 0.37% of deals had missed three or more repayments.

However, the CML noted that this is less than the percentage increase recorded in the wider market and lower than its 0.87% arrears rate.

Although some lenders have increased the amount they are willing to lend, the average sum on offer to potential landlords is 80% of the value of the property - a figure that has remained constant since the beginning of 2001 - and on average lenders are insisting that monthly rental income is at least 130% of monthly mortgage repayments.

"As the housing market continues on its "soft landing", it is no surprise the buy-to-let sector follows suit," said The CML's senior policy adviser, Andrew Heywood.

"Our half-yearly figures suggest the market is in robust shape, and the recent cut in interest rates by the Bank of England will serve to buoy up the sector in the coming months.

"However, lenders will not be complacent, and will keep a close eye on lending to ensure it is responsible and sustainable."