A lack of liquidity, brought about by the banks withdrawing lending in the wake of the credit crunch, is beginning to adversely affect the buy to let sector.
There were 144,600 new buy to let loans in the first half of 2008, down from 169,500 in the first half of 2007. Despite that, the half-yearly decline has been lower than in the wider market. The number of buy to let loans in the first half of 2008 decreased by 18% from the second half of 2007, compared to a 28% decline in the wider market.
CML director general, Michael Coogan, said: 'The shortage of mortgage funding is creating similar problems for buy to let landlords as it is for other borrowers. However, we expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now.'
According to the Association of Residential Letting Agents' (ARLA) Review (Jan 2009), buy to let landlords have prospered during the past half decade. Drawn from 488 lettings offices and 328 Investor landlords, the poll found that the average rate of return on a buy to let investment over the past five years is 10.59% for an outright cash purchase, and 21.54% for a mortgage-backed investment.
The Review also found that the proportion of investment landlords who do not expect to sell during the next 12 months has risen from 77% to 88%. Indeed, most buy to let investors are in for the long run. They expect to hold their asset for up to 20 years and, even if house prices continue to fall, they do not intend to sell. The annual life expectancy of residential property investments averages 16.3 years, with more than one in five investors expecting to maintain their investments for over 20 years.
Ian Potter, Head of Operations for ARLA, said: 'Again and again, these independent surveys show that buy to let landlords are helping to guarantee the growth of the private rented sector and these are the people who provide the housing solutions for those hit by the current recession and in to the future.'
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