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Buy-to-let borrowing hit by fall in rent yields

Buy-to-let borrowers are finding it harder to secure loans after rental yields fell last year, according to IFA Savills Private Finance.

CML figures show that the buy-to-let market continued to rise in the second half of 2003 but SPF director Simon Jones says that some lenders will not lend on properties unless rental income exceeds the monthly mortgage payments by 10 per cent.

The CML figures show that the number of outstanding buy-to-let mortgages rose by 48 per cent to 408,300 at the end of 2003 from 275,000 at the end of 2002.

The total value of buy-to-let lending is now estimated at £39bn, a rise of over 25 per cent from £31bn in June 2003.

But the CML says buy to let still represents only 5 per cent of the total market.

Director general Michael Coogan says: “With lenders sticking to fairly conservative lending criteria and continuing low levels of arrears, the buy-to-let sector looks sustainable and robust.

“Nevertheless, inexperienced landlords should tread carefully. For novices, there is a complicated mix of factors to consider. People should only enter the buy-to-let sector if they intend to hold their property portfolio for some time. It is far from a one-way bet to a quick buck.”

Jones says: “Many lenders sensibly put in place higher income yield calculations to protect borrowers from further falls in rental income but, for the serious property investor, securing a high income from a property may be less important than buying property for long-term capital growth, so a lower rental yield calculation would suffice.”

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