Buy-to-let fuels house price boom
Lending to landlords and mortgage subsidies pull market to record level as investors cash in on cheap deals.
Britain’s buy-to-let mortgage market has surged to levels not seen since the 2008 financial crash, prompting fears that a prolonged period of cheap money is setting off an unsustainable housing boom.
Lending to landlords topped £5bn in the past three months, a period that preceded the Bank of England’s pledge this week to keep interest rates low for the next three years. More than one in 10 mortgages are now being handed to a would-be landlord while first-time buyers are still struggling to get on the housing ladder.
About 40,000 buy-to-let mortgages were advanced in the three months to June, up from 33,000 in the first quarter of the year, as landlords cashed in on cheap mortgage deals and investors sought higher returns than they could get from putting their cash in the bank.
Housebuilders are also reporting a rush to take advantage of government mortgage subsidies for new homes and a top London estate agent said the value of prestige homes in the capital had risen by 18% – adding £500,000 to the price of a central London home in the past year.
Mark Carney, the new Bank of England governor, admits that Threadneedle Street’s commitment on borrowing costs is designed to reassure consumers and businesses that the cost of loans is not going up, which should encourage them to borrow, spend and invest.
Some 40,000 buy-to-let mortgages were advanced in the three months to June, up from 33,000 in the first quarter of the year, as landlords cashed in on cheap mortgage deals and investors sought out higher returns than they can get from putting their cash in the bank.
On Thursday night the housing minister Mark Prisk said: “We’re determined to build a bigger and better private rented sector that gives tenants more choice of good-quality homes. This is part of our wider efforts to get Britain building, which also includes transforming the planning system to support growth and delivering 170,000 new affordable homes by 2015.”
Figures from the estate agency group LSL Property Services released on Friday show that house prices in England and Wales have reached their highest ever level, hitting an average of £232,969.
The figures, based on all property transactions reported to the Land Registry, show prices are now higher than their 2007 peak. They have increased by more than £500 a month over the past year.
Savills, which sells prime London property and reported the 18% price rise, said the average price of its London stock had reached £3.2m. Earlier this week the Halifax said house prices were increasing at their fastest rate in three years, rising 4.6% over the past year.
Stephen Lewis, chief economist at Monument Securities, said: “The danger is that, when a flood tide of mortgage finance meets a chronic shortage of housing, the result will be an escalation of house prices.”
Data from the Council of Mortgage Lenders suggests rents have also risen to record levels. Buy-to-let loans now account for more than 13% of outstanding mortgages, up from just 4.3% a decade ago.
The CML said the boom in buy-to-let loans was the result of an increase in the supply of mortgages, which is linked to the government’s funding for lending scheme. The £80bn scheme – which was designed to improve the availability of credit to businesses as well as homebuyers – has pushed down mortgage rates on buy-to-let loans, with landlords now offered mortgages starting at just 2.5%.
Many lenders had restricted buy-to-let lending following the credit crunch, but in recent months there has been a flurry of activity, with some lenders relaxing their lending criteria. The lower rates on offer are encouraging existing buy-to-let landlords to remortgage and borrow more.
David Whittaker, managing director of Mortgages for Business, said: “Demand for rental property remains red-hot. Landlords are refinancing in their droves to raise enough capital to make further additions to their portfolios.”
The CML data shows that lending for new purchases accounted for about half of the loans advanced, while the rest were remortgages by existing investors. By the end of June, there were 1.5m buy-to-let mortgages outstanding with a combined value of £168bn.
Howard Archer, chief UK economist at IHS Global Insight, said the Bank of England’s pledge on interest rates would provide “an appreciable boost” to the already soaring buy-to-let market.
“First, people can borrow with greater certainty that they will not face higher interest rates for an extended period. Second, people know savings rates are not going to rise from extremely low levels for a long time, so it will encourage them to find better ways of making returns from their money,” he said.
“On top of this, house prices seem even more likely to rise, which means that people buying to let will likely see the value of their asset rise as well, should they want to get out at a later stage.”
Richard Lambert, CEO of the National Landlords Association said his members had already shown an interest in taking on more buy-to-let properties, with 22% saying they planned to add to their portfolios in the next 12 months. Lambert said landlords were achieving returns of 6% to 6.5% across the country. He said good landlords had a role to play in the UK’s changing housing market. “Social housing has contracted and there are few affordable homes so the private rented sector has picked up the slack. If it wasn’t doing that how would those properties be kept in circulation,” he said.
Lambert said that would-be homebuyers were in an unusual position where “mortgage rates are lower than ever but mortgages are almost inaccessible because they don’t have the upfront equity”.
These are the people that the government aims to assist with its Help to Buy scheme, and data from housebuilder Bellway has provided further evidence that the first part, which allows buyers to access interest-free loans on newbuild homes, is boosting demand.
In a trading statement on Thursday, Bellway said Help to Buy had been used to finance 830 reservations in the four months since its launch in April, up 27% on last year’s levels.
Article courtesy of The Guardian