Newsletter July 2008

Resolution Hardens Among Buy to Let Investors

Buy to Let landlords are increasingly resolved to maintain their portfolios of residential investment property. This is despite the fall in house prices. Only a tiny minority, 1.3%, expects to sell because of current market conditions. 7.3% may alter their let portfolios, while four out of ten expect to increase them during the coming twelve months.

These latest figures show a lower Loan to Value ratio than generally reported and an increase in the length of time investment landlords expect to hold their properties. ARLA points out that it is only the individual Buy to Let landlords who are investing in housing at the moment.

These figures are reported in the latest Quarterly Survey of Landlords and the ARLA Review and Index. The Review and Index is supported by the ARLA Group of Mortgage Lenders, Bank of Ireland Mortgages, Cheltenham & Gloucester, GMAC RFC, Mortgage Express, NatWest and Paragon Mortgages.

The ARLA Review shows a rate of return on investment from the cash purchase of investment property of 10.82%, averaged across all regions, and for a geared purchase, the rate of return is 20.86%. These figures assume an investment over five years - the minimum that makes sense - and include both capital appreciation and rental yield.

However, investment landlords report yet again that they expect to hold their residential property investments for the best part of two decades, up to an average age of 17.2 years, up from 16.7 years in the previous quarter.

Investment landlords are reporting generally low Loan to Value ratios. Four out of ten have borrowings of less than 50%. A further 37% report their loans remain between 51% and 75%. Less than 2% have borrowings in excess of 90% of the value of their investments.

Commented ARLA's Head of Operations, Ian Potter, "Buy to Let landlords are confirmed as prudent investors for the long term. These investors understand the realities of the investment market they have chosen. This understanding would appear to be far greater than the understanding shown by investors in many other markets and is proving to be a bonus for the nation's housing problems. There is no one else investing in residential housing at the moment."

ARLA's latest figures show that in the search for a Buy to Let mortgage lender, personal research ranks highest among investors. This is followed by more than half going for previous experience of their lender, while slightly less than half look for a lender that is well established in the market.

When choosing a mortgage product, the initial interest rate ranks as the most important factor, at 54%, followed by the true cost of the mortgage at 33% and the rental calculation at 31%.

60% prefer to arrange Buy to Let mortgages through a mortgage broker, while 20% go directly to their lender of choice.

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Gross lending edges down in May

Gross lending totalled an estimated £25.5 billion in May, down only 2% from £26.1 billion in April but 19% from the £31.5 billion high in May 2007, according to the CML. 

Monthly lending levels have continued well below their position last year but at good historic levels. The Bank of England’s approvals figures show that this pattern will continue in coming months, and that lending activity has strongly focused on the remortgage market. But a wide range of banks and building societies continue to offer a range of mortgages in the market place, despite the credit crunch and funding constraints. 

CML director general, Michael Coogan commented: 

"The remortgage market remains on track to meet our forecast for growth this year, demonstrating the resilience of the market despite recent bad news. However, by comparison, the next few months will remain very weak for house purchase activity for the funding reasons which are now well rehearsed. We still await first signs of the Bank of England’s Special Liquidity Scheme indirectly helping to ease the current logjam.”

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