n danger of overheating? to-let sector but is he right?
There is no doubt we are seeing a boom in the buy-to-let market with second quarter mortgage volumes the highest since 2008 and lending to landlords reaching £5bn during the three month period.
It is understandable that this causes some nervousness; inevitably when lending levels start to rise people make comparisons to the condition the housing market was in before the crash fearing it could happen again. Lord Lamont is the latest of those commentators recently warning the Chancellor to keep a close eye on the sudden growth in the buy-to-let sector. Lamont has concerns over this market collapsing when interest rates rise and the potential detrimental knock-on effect this could have upon the economy. It is important to put this recent buy-to-let boom into context. The volume of these mortgages is still significantly below the pre-crisis peak and there is little chance that policymakers and regulators would let anything like the levels of pre-crisis lending volumes go
unchecked.Two fundamental issues are underpinning this recent surge in buy-to-let. First the lack of social rented property means the private rental sector is having to step in to service these tenants and they are doing a great job in filling this gap.
Secondly although the volume of house building has
improved in recent months there is still a severe shortage and supply cannot keep up with demand. House prices are therefore being driven upwards as seen in the latest Land Registry house price index. This is making owner occupation unaffordable for many in the UK and they are therefore turning to the rental market. On another note, Lamont appeared to question traditional affordability calculations based on the ratio of wages to mortgages but this is outdated. Most lenders have abandoned such crude calculations and have replaced them with sophisticated affordability systems coupled with interest rate stress tests. We should be rejoicing in the improved fortunes of the buy-to-let market not worrying about a return to the bad old days which I’m happy and confident in saying are long gone.
Charles Haresnape is managing director of residential mortgages at Aldermore
nse. Do you want to join the debate? Email
robyn@mortgageintroducer.com www.mortgageintroducer.com MORTGAGE INTRODUCER SEPTEMBER 2013 33
When the credit crunch first hit one question was repeatedly bandied about in the press – how did we not see this coming? Of course there were those who had predicted problems, namely the then Liberal Democrat Treasury spokesman Vince Cable who voiced his concerns back in 2003, but for the most part the industry was left wondering how so few people saw the bubble was about to burst. It does not surprise me therefore that, with the buy-to-let market beginning to pick up and experiencing a so-called boom, former Chancellor Lord Lamont is among those questioning the safety of another surge in lending. However I do not think we are running the risk of an “economic catastrophe” in the buy-to-let sector. The current increase in buy-to-let mortgage lending is steady and sustainable. While residential mortgages have been difficult to come by for many first-time buyers the private rented sector has flourished. There has been an increased demand for good rental properties and therefore an increased demand for buy-to-let mortgages. It’s important to note though that the residential mortgage market is improving. Indeed average rents have barely increased since May as a result of the fact more first-time buyers are able to access mortgage funding. Secondly, whilst lending criteria has relaxed more recently, it is still detailed and thorough enough to ensure only the right people and the right properties are lent to. Landlords need to have a sizeable deposit and strict criteria is in place to ensure the correct lending decision is made. Finally we must put the current positive buy-to-let figures into perspective. Buy-to-let lending is still less than 50% of what it was at its 2008 peak and even with most industry experts predicting the sector will continue to flourish it’s unlikely we will reach those dizzy heights again anytime soon. It is of course advisable as with any surge in business to ensure it is not fuelled by irresponsible lending. I believe both lenders and landlords in the buy-to-let arena have just the right amount of innovation and cautiousness to ensure that doesn’t happen.
Ying Tan
is managing director of The Buy To Let Business
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