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Harris on mortgages

The latest CML figures on the buy-to-let sector have been covered extensively and used as the basis for a number of articles full of doom and gloom. Much has been made of the likelihood of an erosion of support at the lower end of the housing market and the subsequent end to the boom that has shored up the UK property market.

But such an interpretation not only does not do anybody any favours but it is also not backed up by the CML’s findings. Such scaremongering can have an impact on a market where confidence is vital, causing investors to panic.

Take a closer look at the CML’s figures reveals the picture is far rosier than the one that has been painted. Although growth in the buy-to-let sector was indeed slower in the second half of 2004 than in previous periods, it still continued to grow strongly. New lending was an estimated 9.8bn over the period compared with 12bn in the first half of 2004.

The number of BTL loans in arrears did increase faster in the second half of 2004 than arrears on residential loans but this needs to be put into context – the number of BTL arrears is still lower than on residential loans – in general, 0.63 per cent of BTL loans are in arrears compared with 0.8 per cent of all mortgages.

The CML concludes that landlords plan to maintain or increase their holdings rather than sell up because their interest in the market is long term. The CML remains confident that the BTL sector will continue to grow and form an attractive part of many investors’ portfolios. I also believe the BTL market will remain buoyant.

Even though the FTSE 100 has picked up in recent months, breaching the5,000 barrier, all the signs are that property will continue to be an important investment in 2005. For many BTL investors, their residential property holdings are likely to have been their best-performing assets over recent years.

A Savills Private Finance survey with more than 3,000 of our client landlords at the end of last year revealed that most of them are taking a long-term view, with pension provision one of the greatest motives for investing in property. The change in pension rules from April 2006, allowing schemes to invest in residential property for the first time, will boost the sector further.

Although property prices have undeniably fallen in parts of the country, seasoned landlords view this as a buying opportunity. It is a buyer’s market and those prepared to haggle can pick up a bargain.

The majority of respondents to our survey certainly remain upbeat about the prospects for buy to let, planning to expand their portfolios in coming years. Direct holdings of residential property are expected to grow by 30 per cent in the next two years and by 100 per cent over the next five years.

The increasingly attractive BTL mortgages on offer will make it easier for landlords to expand their property portfolios or refinance their borrowing and persuade those contemplating BTL to take the plunge. Lenders have been busy enhancing their products so landlords no longer need 25 per cent deposits or 130 per cent rental cover and are not forced to pay commercial rates of interest. These measures should ease pressure on landlords’ cashflows and make BTL a more viable proposition for a wider number of people.

The CML figures simply show that the buy-to-let market is following the rest of the residential property market in experiencing a slowdown in growth. As first-time buyers continue to struggle to get on the property ladder, they will be forced to carry on renting, providing landlords with plenty of tenants. Talk of a crash on the basis of the evidence available is irresponsible.

Mark Harris is managing director of Savills Private Finance

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