The CML’s market analyst Carla Sateriale tackled the suggestion landlords are borrowing as much as they can because it is cheap to borrow, by pointing out CML data shows on average, the loan-to-value ratios of buy-to-let borrowers are comparable to those of residential mortgage borrowers.
“The leveraging profile of buy-to-let borrowers looks particularly conservative when viewed alongside first-time buyers, who on average borrow 78 per cent of the property value, versus 70 per cent of the property value for buy-to-let borrowers,” she stated.
Responding to criticisms that buy-to-let borrowing is all interest-only and therefore only sustainable if house prices keep rising.
According to the CML’s figures, about three-quarters of new buy-to-let loans are issued on interest-only terms.
This varies by region - in Northern Ireland, only 56 per cent of buy-to-let mortgages are interest-only, while in Scotland it is about 65 per cent - meaning investors may be choosing to pay down debt where price growth is less likely to enable them to borrow against the rising value of property holdings.
Another argument has been that when interest rates inevitably rise, buy-to-let borrowers will be forced to sell up or raise rents to cover their mortgage costs.
Ms Sateriale said lenders do not want a hike in interest rates to disrupt mortgage repayments, which is why the industry has been factoring that possibility into their assessments of affordability.
Over the past two years, the margin between buy-to-let borrowers’ interest rates and the rates at which they could still cover interest payments (without raising rent) is growing, according to the CML.
The CML’s statistics suggest 84 per cent of new buy-to-let lending is issued at fixed interest rates and about two-thirds of these are fixed for periods of over two years.
The proportion of fixed rate loans with rates fixed for more than three years has gone up from about 10 to 18 per cent since early 2014, reflecting an increasing appetite among buy-to-let borrowers to be insulated from an interest rate hike for a longer period.
A final assertion, that buy-to-let growth has been driven up by under-prepared amateur investors looking for a better yield than retail savings and investments, was harder to quash.
“Our transactional data does not provide comprehensive data in this area but, using partial data where this information is provided, we estimate at least 75 per cent of new buy-to-let lending is going to borrowers who already have at least one other buy-to-let mortgaged property with that lender,” stated Ms Sateriale.
“However, this probably understates the number of multi-property investors, as it takes no account of properties which are either mortgaged with other lenders or not mortgaged at all.”
The Bank of England’s latest lending statistics showed that buy-to-let’s proportion of lending rose marginally from 15.6 per cent in the third quarter of 2015 to 15.9 per cent in the fourth quarter of 2015.
Buy-to-let advances increased over the last year from £7.7bn advanced in the fourth quarter of 2014 to £10bn in the fourth quarter of 2015 - the greatest amount since 2007.
A Natwest broker survey at the end of January found 66 per cent said they had seen an increase in demand for buy-to-let mortgages from customers over the last six months, with just 7 per cent having experienced a decline.
In the Autumn Statement, chancellor George Osborne announced a new rate of stamp duty that will see buy-to-let investors and owners of second homes pay 3 per cent more from this April.
The National Landlords Association suggested buy-to-let investors could sell off as many as 500,000 over the next 12 months because of these tax reforms.
peter.walker@ft.com
