Buy to Let slowdown

Buy to let Slowdown?

06 Mar 2008

A recent survey by the Royal Institute of Chartered Surveyors has indicated that the buy to let boom of recent years may finally be coming to an end. It said that instructions from landlords fell in 2007 for the first time in 9 years.

One of the main drivers of the slowdown is thought to be the stiffer lending criteria imposed by buy to let mortgage providers on the back of the credit crisis in the latter half of 2007. As mortgage providers don't have access to cheap borrowing themselves due to lower liquidity in the money markets, they are in turn being more selective over who they offer buy to let mortgages to. Buy to let providers are keen to reduce the risk in their mortgage portfolios to avoid the kinds of problems produced by the sub prime mortgage crisis in the US.

Is this a one off or a trend?

Only last month, the Council of Mortgage Lenders (CML) said the number of buy to let mortgages issued in 2007 had increase by 25% from the previous year.

It seems that there are just supply constraints within the buy to let mortgage industry. All indicators seem to state that demand for rental property remains high with letting agents receiving high demand from potential tenants. The CML figures seem to indicate that there are still landlords taking out buy to let loans, keeping demand for buy to let properties high.

The effect then of more stringent lending criteria from mortgage providers seems to be preventing new potential landlords from borrowing for buy to let, instead it appears to be existing landlords who appear to be filling the gap. Most likely many of these existing landlords are refinancing and using the equity gains over recent years to supply the higher deposits for new but to let investments that the mortgage companies are now demanding.