The state of buy-to-let

Back in July last year, a piece in The Financial Times brought us the news that two buy-to-let lenders had cut their rates: Natwest was offering a two-year fixed-rate mortgage at 3.49% (max LTV 60%; £1,999 fee); Coventry Building Society offered a two-year fixed rate of 3.75% (max LTV 65%; £1,249 fee).

Fast forward half a year. Take a look at abbeyforintermediaries.com and you’ll find a two-year fixed-rate BTL deal at 2.89% (max LTV 60%; 2.5% booking fee, which must be added to the loan.

That’s quite a drop over six months. So what else can we say about the state of the BTL market today? A brief look at the buy-to-let market, provided by Ocean Finance.

BTL doing well

In short, the private rented sector is doing well, with more people renting for longer. Over the course of a decade, private renters went from 9% of the population in 2001 to 15% in 2011, according to 2011’s Census.

In November of last year, there was more encouraging news about BTL. In the third quarter of the year, the Council of Mortgage Lenders informs us, BTL mortgages worth £4.2 billion were advanced, marking an 8% increase on the previous quarter.

Although 2012’s fourth-quarter figures have yet to be released, the first three quarters of the year saw BTL mortgages totalling £11.8 billion advanced – an even greater increase (of fully 19%) on the figure from the same period in 2011.

So the number of outstanding BTL mortgages is still climbing – and the rate’s accelerating. As Q3 drew to a close, there were 1,444,000 of them (worth £164.3 billion). That’s an increase from 1,367,000 BTL mortgages (worth a total of £156.7 billion) at the end of Q3 2011.

And with lending criteria barely changed over three years, the average maximum LTV remained at 75%.

As 2013 starts…

In January, the Bank of England’s Credit Conditions Survey brought us more news about the market: lenders said they’d seen an increase in demand for secured lending for house purchase in the final quarter of the year, ‘spread across prime and buy-to-let lending’.

One kind of data the Credit Conditions Survey supplies is the ‘net percentage balance’, calculated by ‘weighting together the responses of those lenders who answered the question by their market shares’. A positive number means that lenders expecting an increase outnumbered those expecting a decrease; a negative number means the opposite.

In every quarter of 2012, the figures indicating expected demand for buy-to-let lending were positive, meaning more lenders expected demand to rise over the following quarter.

Looking ahead

As for the year ahead? The Telegraph provides a top 10 list of ‘buy-to-let hot spots in 2013’: London, Victoria/Pimlico; Maidenhead; Exeter; Cambridge; Bristol; Milton Keynes; Inverness; Aberdeen; London, Canary Wharf; and Central Manchester.

It’s easy to see why there’s optimism about BTL’s prospects. It’s not just because a lot of would-be homeowners are finding it hard to save a deposit. At times like this, with the economy struggling and millions worried about job security, renting can provide some much-needed flexibility for people who might need to move quickly to take advantage of job opportunities when they arise.