Newsletter March 2008

CML reports Buy to Let lending up in 2007

New survey data from the Council of Mortgage Lenders shows that Buy to Let lending totalled £24.1 billion in the second half of 2007, up from £21.2 billion in the first half of the year and £20.8 billion in the second half of 2006.

The number of loans (including remortgages) to Buy to Let landlords in the second half of the year was 179,100, up from 171,800 in the first half of the year and 177,200 in the second half of 2006.

The total number of outstanding Buy to Let mortgages has now passed the million mark, standing at 1,038,000 at the end of 2007 - nearly 23% up on the 846,900 a year earlier.

On average, at the end of 2007 lenders had an 85% maximum on the percentage of the value of the property that they were willing to advance, and required rental income to amount to 120% of the required mortgage payment.

Arrears remain lower than in the wider mortgage market, with 0.73% of Buy to Let loans in arrears of more than three months at the end of 2007 (up from 0.63% at the end of the first half of the year, and 0.58% at the end of 2006). This compares with 1.1% in the wider mortgage market. The proportion of Buy to Let mortgages taken into possession was also smaller than in the wider market - 0.18% for the year as a whole, up from 0.13% in 2006 but lower than the 0.23% in the wider market in 2007.

Michael Coogan, CML director general, commented:

"Tenant demand for private rented property remains strong, and Buy to Let is fulfilling an important role in helping to deliver an increased flow of high quality homes to rent. Buy to Let has remained resilient in the face of the funding constraints that have affected the sector and the wider mortgage market.

"Many Buy to Let loans have interest rates linked to interbank rates, so may have seen hefty increases in payments when Libor rose to abnormally high levels in the second half of 2007. These are now likely to be returning to lower levels in line with the reduction in Libor rates since December last year.

"We expect to see a continuing healthy appetite for Buy to Let finance this year, in line with continuing expected consumer demand for private rental property."

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11% growth in gross lending in January

Gross mortgage lending rose to an estimated £26.5 billion in January, up 11% from £23.9 billion in December, and reached a similar level to January 2007 when it was £26.6 billion, according to the Council of Mortgage Lenders.

This is a good performance given the unsettled market conditions since last summer. However, gross lending volumes are expected to be lower in the coming months following the fall in mortgage approvals recorded by the Bank of England towards the end of last year.

CML Director General Michael Coogan commented:  

“Gross lending held up well in January. However, there is considerable uncertainty in the housing market at the moment and we expect lending volumes to be lower in the coming months. 

“It is likely that demand will be stronger for remortgaging than for house purchase in the short term. Home-buyers might be more inclined to transact if their moving costs were reduced - and the government has the opportunity to address this by raising stamp duty thresholds and cutting the rates of stamp duty in next month's Budget.”

Click here for Buy to Let, Commercial , Development Finance and Residential mortgage products 

Market Comment - Now is the time to secure your Fixed Rate.

Now is the right time to consider securing a fixed rate. With successive drops in the Bank of England Base rate and many borrowers’ eyes on the US Federal Reserves' steep cut in their equivalent there has been a growing trend for borrowers in the UK to hold back from committing themselves to a rate in the belief that if they refrain a little longer they will be able to reduce their costs of financing even further. This tactic looks likely to backfire.
 
In common with all central banks the BoE faces a difficult balancing act between the twin problems of a pronounced slowdown in economic growth and rising inflationary pressure driven by record highs in oil and other commodity prices. This has become a theme in recent speeches by Mervyn King, the governor of the bank who has been keen to soften market expectations of just how far our Base Rate will fall, and indeed when. The problem is that according to many commentators the recent lows in the medium term money markets have already assumed Base rates as low as 4.25% so any sustained view that this is becoming less likely or that rates will reach a trough and then rise sharply will quickly be reflected in the medium term swap rates which all lenders will use to price their fixed rate mortgages. Indeed we have seen a rise from 4.95 to 5.19 over the last 4 weeks so a definite trend appears to be emerging.
 
There is another perhaps less understood issue about floating rate loans which we believe is also likely to have an impact on the market in the coming months.
 
The current divergence between the official Bank of England rate and LIBOR (those amongst you who have a loan linked to LIBOR will understand the point well) has seen the spread between the two widen significantly since the emergence of the much publicised 'Credit Crunch' last autumn. Even the most experienced economists seem to find it is impossible to predict when this particular area of the market will return to normality. The problem for many lenders is that their 'cost' of money is based on LIBOR which immediately reduces their return on a Base rate linked loan. Currently (29.02.2008) 3 month LIBOR rate is 5.70% but Bank of England Base Rate is 5.25%. There has been recent press commentary about lenders not passing rate cuts on and we believe that this would be a key contributory factor. Looking into the future it is therefore possible that we will see further rises in the cost of variable rate borrowing.

With all the above in mind there really has never been a better time to secure a fixed rate product at their current rates. If you do decide to hold out a little longer you could be paying for it.

Take a look at our Buy to Let fixed rate products online now.

Click here for Buy to Let, Commercial , Development Finance and Residential mortgage products