Boom in buy to let mortgages
Buy to let mortgages, which allow investors to buy property to rent out privately, have experienced massive growth, with the number of loans taken out last year up by almost 50% on 2005.
Borrowers took out 330,000 buy to let mortgages worth £38.4bn last year, accounting for 11% of all mortgage lending, according to the Council of Mortgage Lenders (CML).
The boom has been due to a combination of elements. Increased competition, with more and more lenders coming into the buy to let mortgage sector during 2006, has forced down the interest rates charged. Also, some new lenders are demanding smaller proportional deposits and lower levels of rental cover than previously required.
Continuing house price growth has helped bricks and mortar to retain their attraction for investment purposes, despite decreasing annual returns from rental property.
Michael Coogan, director general of the CML said: “Strong tenant demand, rising rents and falling void periods,” mean this sector will remain “popular and successful”.
Experts point out that inward immigration, healthy student numbers, robust divorce levels and the fact that first-time buyers are getting on the housing ladder later and later in life, underpin strong demand for rental property in the UK.
But some analysts are worried that a bubble could be forming in the buy to let sector, that could burst if interest rates continue to increase.