BTL investors may have a long wait before seeing capital returns

A couple comparing paperwork

Recent data shows that buy to let lending is on the increase, and projections suggest that rents will rise – but that property prices are unlikely to reach their pre-downturn levels for several years.

Data published by the Council of Mortgage Lenders (CML) on 8 November reveals that buy to let lending in the first three calendar quarters of 2012 increased by 19% over the same period in 2011. An increase of 2% in the number of mortgages loaned between Q2 and Q3 was also shown, with home buy accounting for 54% of loans and remortgages for 45%.

A summary of the key statistics highlighted in the report is as follows:

  • BTL lending between 1 January and 30 September 2012 amounted to £11.8 billion, compared to £9.9 billion the previous year (an increase of 19%)
  • The value of existing BTL mortgages has increased: from £156.7 billion as of Q3 2010, to £162.5 billion as of Q3 2011, to £164.3 billion as of Q3 2012
  • The increase in the value of BTL lending between Q2 and Q3 2012 was 8% (£3.9 billion to £4.2 billion)
  • The increase in the number of BTL loans between Q2 and Q3 2012 was 2% (33,600 to 34,400)

Though buy to let lending seems to be on the increase it is still a long way from the peak levels of 2007/8; CML predicts that this year’s figures will approximate a third of that amount. The ratio of buy to let investors, first time buyers and home movers has remained generally stable, with home movers accounting for the majority of borrowers.

The rental index

The most recent HomeLet rental index shows an increase in the average UK rent between September 2011 and September 2012 of 2.9%, to £808 pcm. This represents a 0.2% increase since August, but if Greater London rents are removed from the calculations the average rent becomes £678; 2.7% less than the previous month.

Forecasts released by Savills on 9 November predict that the growing number of young families and professionals unable to afford deposits for their first homes will continue to push private sector rents up; Savills anticipates a 2.5% in 2013, and an 18.2% rise by 2017.

Property prices

These projections make buy to let look attractive, but investors may have to be prepared to wait if they wish to capitalise on property appreciation.

Global property consultancy Knight Frank released their UK housing market forecast on 6 November. The forecast anticipates that it will be 2019 before the market sees the same levels as the 2007/8 housing peak. In ‘real terms’ (i.e. factoring in inflation), this wait lengthens to 2031; either way, it will represent the longest period between house price peaks in six decades.

Capital growth, then, remains very much the ‘long game’ for the majority of buy to let landlords.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.