Buy-to-let up by half

LAST YEAR saw yet another boom in buy to let, according to the Council of Mortgage Lenders. Loans to landlords rose 48% by volume and 57% by value over 2005.

Buy-to-let now makes up 11% of the entire mortgage market – not bad for an idea that has existed for only ten years. After a brief pause for breath at the start of 2005, with a record 177,800 gross advances in the second half of 2006. Overall, the year saw 330,300 worth £38.4 billion.Can the boom go on? So far, public appetite for buy to let seems to be insatiable. While many professional investors may be focussed on long-term rental returns it is hard not to believe that many are looking entirely on capital growth, particularly when gearing can multiply that many times over.

For lenders, buy to let represents a highly profitable new area (see the 20% increased in business in Bradford and Bingley’s results yesterday, for example) with, so far, very little risk. The rate of repossession is marginally higher than in the traditional mortgage market but arrears are lower, and lenders have the option to appoint a court receiver to carry on collecting rents.

The consequences are becoming increasingly clear though. Private renting rose by 20% between 2000 and 2005 whereas the number of people buying with a mortgage fell. Up to half of new-build apartments in big cities are being bought by investors. And an acceleration in the redistribution of wealth to existing home owners.