Buy to Let Lending

LETTERS TO THE EDITOR: Buy-to-let reflects continuing stability of lending portfolio

By Andrew Heywood, Financial Times
Published: Feb 22, 2007

From Mr Andrew Heywood.

Sir, Your article "Number of buy-to-let mortgages rises 30-fold in past decade" (February 15) suggests that latest buy-to-let data "show an almost frenzied appetite from new landlords" and "could raise fears that Britain is in the grip of a residential property investment bubble".

This emotive language risks presenting the data in a one-dimensional way by ignoring both the degree to which buy-to-let investment reflects the dynamics of the private rented sector and the continuing evidence of stability across the lending portfolio.

Buy-to-let lending has certainly increased dramatically since 1999 when figures were first collected. But it has contributed to only a relatively modest rise in the private rented sector from 9.8 to 10.8 per cent of all tenures over the same period. Growth in the private rented sector has not kept pace with what would seem to be required by social, political and demographic changes. The rise in the student population, the increase in immigration and the increased use of the sector by local authorities to house the homeless are just three relevant factors. Add in increased mobility, changing lifestyle choices and the effects of relationship breakdown, and the unique flexible contribution of the private rented sector, supported in part by buy-to-let investment, becomes even more apparent.

In terms of the stability of lender buy-to-let lending portfolios, the picture is encouraging. Across

existing portfolios, the average loan to value ratio is likely to be around 60 per cent. And arrears in the sector remain lower than for the mortgage market as a whole. When added together receiverships and

possessions are at 0.2 per cent of all buy-to-let loans, somewhat higher than for residential mortgages,

but this reflects a tighter limit to lender forbearance in what are commercial rather than consumer transactions.

No one would suggest that there is room for complacency across any sub-sector of the housing market at a time of rising interest rates. But there are good reasons to see the buy-to-let market as underpinned by strong fundamentals.