Buy-to-let mortgage market a 'vital source of stability'

31 July 2008 / by Rachael Stiles
The buy-to-let mortgage market remains a 'vital source of stability' in the uncertain property market, seeing average yields of 6.4 per cent in June for the second consecutive month.

According to Paragon Mortgages' Buy-to-Let Index, the private rented sector is helping to hold up the wider property industry which is suffering from falling house prices and plummeting sales.

The average rent, which has been rising rapidly due to demand from would-be homebuyers who have opted to rent until the market stabilises, has levelled out at an average 9.3 per cent higher than the same time last year – just short of £1,000 a month.

The index found that tenant demand has remained strong, encouraging landlords to retain their properties, even taking advantage of the falls in house prices to look at investing in more properties.

"For the vast majority of landlords, a slow housing market is nothing new." explains John Heron, managing director of Paragon Mortgages. "They recognise the counter-cyclical nature of buy-to-let and many landlords have held property through previous housing cycles. Falling prices are spooking first-time buyers and they are delaying house purchase, with tenant demand at high levels as a result."

Meanwhile, some buy to let mortgage providers have reduced their rates, making it even more attractive to remain in the buy-to-let sector or to make opportunistic purchases.

One such lender is Woolwich, which has cut the rates on its lifetime tracker by 0.40 per cent and its five year fixed rate mortgage by 0.50 per cent.

"We've been able to make these reductions thanks to solid improvements in SWAP rates," said Andy Gray, head of mortgages at Woolwich. "Thanks to these improvements, last week we launched market leading fixed and tracker residential mortgages. Now better SWAP rates have enabled us to substantially reduce rates on some of our most popular buy-to-let mortgages.

"The rate change is good news for the less experienced buy-to-let investor. Much more than professional landlords, they have been deterred from taking part in the market by recent credit conditions."

Mr Heron added: "During the downturn of the early 1990s we witnessed mass (re)possessions because there was little alternative to house purchase and young buyers had borrowed above their means. Today's modern and vibrant private rented sector provides people with a viable alternative to owner occupation and buy-to-let provides housing for young people who would otherwise have little choice but to buy and be financially stretched."

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