Buy-To-Let Boom Isn't Over

The number of buy-to-let mortgages rose by a staggering 48% last year. One Fool reckons there is more growth to come.

News that the buy-to-let market is still powering ahead will come as a complete shock to some given the doom and gloom surrounding another interest rate rise and house prices continuing to creep up. But there are many sound reasons for the growth.

What started out as a trickle of investors is now turning into a flood. The backlash against poor-paying pensions was part of the impetus and encouraged people to start switching money into bricks and mortar instead.

The authoritative Council for Mortgage Lenders says the number of buy-to-let mortgages rose by a staggering 48 per cent last year taking the total number to about 850,000. While figures for the first half of this year aren't available yet I feel sure they will show continued growth.

And why not? High interest rates are actually good news for landlords. It means more potential first-time buyers are priced out of the market and forced to continue renting.

Plus the massive influx of EU migrants into the UK has swollen the numbers of renters. More than 600,000 people have moved to these shores since the EU expansion in 2004. And more will follow.

It seems the majority of landlords have been sensible and not jumped in feet first in spite of many media pundits' forecasts. Specialist lender Paragon backs this up with evidence that more than 70 per cent of buy-to-let borrowers opted for fixed rates, protecting themselves from those devils at the Bank of England who still haven't quite got a grip on inflation.

Two more rate rises are predicted by the end of the summer. Many shrewd landlords have seen these hikes as a time to actually start edging up rent to keep healthy yields.

Going forward, lenders have slowly realised how responsible these types of borrowers have become. Repossession figures are low as are defaults. In response many mortgage firms are relaxing their criteria and offering more competitive deals.

For example Halifax specialist arm BM Midshires has a standard residential tracker mortgage at 4.99 per cent. Its buy-to-let equivalent is only one basis point higher at 5 per cent. And deposits needed are much lower than before, reflecting lenders' increasing comfort.

This has all helped fuel the buy-to-let boom.

The only fly in the ointment is a warning from City watchdog the Financial Services Authority about fraud within the buy-to-let sector. It has found landlords masquerading as first-time buyers or pretending they intended to live in the property in order to secure their buy-to-let purchase. This is to secure bigger loans and smaller deposits.

This shows the desperation among some to get their foot further up the property ladder. But there is a danger they will spoil it for the rest of us. Like all the money that has been pouring into property funds, it shows the British obsession with houses is alive and well.

For the majority of us let's hope it stays that way.

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