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Buy-to-let buoyant

Confidence is generally high after a strong first half, says Tanya Powley

Buy-to-let lending is continuing to outperform the wider mortgage market, according to the Council of Mortgage Lenders.

Borrowers took out 171,800 new BTL mortgages worth £21.2bn in the first six months of 2007. By the end of June, the number of outstanding BTL loans had reached a record 938,500 totalling £108bn – an increase of 14 per cent on the second half of 2006.

BTL now accounts for 10 per cent of mortgage balances compared with 3 per cent five years ago.

The number of BTL loans taken out was down by 3 per cent compared with the same period last year but with the wider market seeing a decline of 4 per cent, many mortgage brokers believe that BTL will remain a booming part of the market for the foreseeable future.

Chartwell Funding managing director Robert Winfield says stockmarket volatility partly accounts for the number of people looking to invest in residential property.

He says: “We are seeing a change in the type of BTL investors. A lot of the short-term investors are leaving the market but we are seeing new long-term investors coming to the fore – people who are doing it as part of their pension planning.”

Brentchase Financial Services mortgage specialist Mike Fitzgerald says many City workers have been choosing this option recently. “A lot of people seem to be preferring to buy a really good bit of property and do not mind putting half their pension fund in it. They see it as something more concrete.”

But The Mortgage Practitioner sole practitioner Danny Lovey believes the BTL bubble could be on the verge of bursting. He says: “The BTL sector really is being kept alive by the shortage of housing. All people can do is rent but I do not think it is a time for BTL investors to be complacent. There are a lot of warning signs out there.”

Lovey says rental income is steadying, which points to a fall-off in demand. He says: “I have been urging caution to my BTL customers for some time now as I just do not think the figures work.”

He says a lot of newbuild flats are being repossessed because investors are getting squeezed. “A lot of BTL investors are too highly geared and they are starting to get nervous about it now,” he says.

But Winfield believes the market will remain buoyant. He says: “It is not at all ready to burst, especially with house prices remaining high.”

The first six months’ lending figures saw Mortgage Express take over from BM Solutions as the biggest BTL lender. GMAC-RFC dropped from fourth to seventh position but head of marketing Jeff Knight says he is not concerned.

Knight says: “I was surprised we were ever fourth. We are not looking to be number one or two in this sector. The BTL sector has been very buoyant and other lenders have probably gained more of the market share than we have.”

This comes despite GMAC-RFC stating in June that the BTL applications it received in the second quarter of 2007 showed a sixfold increase on the first quarter.

Paragon group retained its position as the thirdbiggest BTL lender. Chief executive Nigel Terrington says: “CML data shows a BTL market that is extremely resilient and continues to outperform the wider mortgage market on all measures.”

“In terms of business volumes, the number of new BTL loans remained strong in the first and second quarters although volumes were lower than in the third quarter of 2006. The credit quality of BTL continues to be exceptionally high and arrears’ levels remain much lower than the mortgage market overall, with 0.63 per cent of BTL loans three or more months in arrears in the first half compared with 1.06 per cent for all loans.”

Terrington says repossessions are very low and declined between the first and second quarters. He says: “Not only does this continue to show BTL as delivering better performance than mainstream mortgages but also shows there is no comparability with sub-prime lending.”

Cheltenham & Gloucester jumped to fifth position in the BTL lending table from seventh. Head of corporate and specialist intermediary sales Mark Blackwell says the lender will make further innovations to its proposition towards the end of the year to ramp up its presence in the market.

The CML statistics show that the typical maximum aggregate loan that lenders were prepared to make to a single investor increased to £2.5m, reflecting rising property prices and the continuing confidence of lenders in the sector.

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