Investors ignore buy-to-let warning signs

Buy-to-let investors are continuing to flood into the property market despite falling rents and warnings of overheating in the sector, two separate surveys showed yesterday.

The Royal Institution of Chartered Surveyors said amateur landlords are still piling into the market even though lettings income is down for the sixth successive quarter.

Figures from the Council of Mortgage Lenders show that more than 58,000 buy-to-let mortgages worth £5.5bn were taken out in the first six months of this year, up from 42,000 loans during the previous six months.

Buy-to-let lending has grown rapidly into a £19bn market with some landlords building up large portfolios of properties.

But in recent months there have been warnings that the booming market could turn sour amid evidence of falling rents and unlettable properties. As long ago as December the financial services authority said it was concerned that borrowers might be "over-reaching" themselves, particularly in London and the south-east.

Earlier this month it emerged that FSA chairman Sir Howard Davies had apparently taken heed of his organisation's warnings and sold a rental property.

In its latest residential lettings survey for the three months to July 31, Rics said competition between landlords had held down rents during the quarter. "Rents are predicted to show little change in coming months. Landlords are struggling to find tenants, but low rental levels are helping to attract new tenants from would-be first-time buyers, unable to buy because of high prices," it added.

Milan Khatri, Rics chief economist, said: "A number of chartered surveyors are reporting that the more shrewd investors are beginning to divest themselves of unprofitable properties before the property market slows down."

The CML said that although rental yields are falling in some areas, "fundamentally the buy-to-let sector remains sound and we expect it to continue to be popular".

The reports coincide with evidence that mortgage lending is still expanding at a rapid pace as homeowners cash in on rising property prices. The British Bankers' Association said 237,500 new mortgages were approved in July, up 16% on a month earlier.