Buy to Let Lenders Forget to Mention the Missing Link

Buy to let mortgage lending is going from strength to strength, according to industry trade body the Council of Mortgage Lenders.

In a lengthy review of the market, the CML discusses various reasons why buy to let is thriving while the rest of the mortgage market is in the doldrums – but fails to mention a key fact.

In a recent open forum on buy to let lending, Paul Howard, head of Nationwide’s specialist accounts, which includes leading landlord lender The Mortgage Works (TMW), candidly explained that margins were the driving force for lenders.

Howard highlighted that mortgage lenders can make bigger profits on lending the same amount of money to landlords rather than other homeowners – especially first time buyers.

“Buy to let margins are a lot more attractive than residential lending,” he said. “The likelihood lender’s criteria will soften to tighten margins to give landlords better pricing.”

The CML claims the buy to let mortgage sector takes pains to explain their support of buy to let landlords is not at the expense of first time buyers.

Facts and figures are produced that show movements for both markets – coming to the conclusion that a shortage of properties is the main issue constraining the first time buyer market.

“The causal relationship between buy to let and first-time buyer activity is far from clear-cut,” says the CML. “While the balance of tenures has evolved over time, the key housing problem in the UK is a persistent shortage of supply of property, relative to the formation of households.”

The CML also claims that the main drivers of the buy to let market are not first time buyers but:

• Incoming migrants who are unable to buy a home
• Households making a decision to rent rather than buy because of jobs, finances and other personal reasons

“The fundamentals of growth in the number of UK households, combined with constraints on access to the owner-occupied and social housing sectors in the foreseeable future, suggest that demand for privately rented accommodation will remain strong and continue to grow,” says the CML.

“The root cause of many of the problems in the housing market, for would-be owner-occupiers and for landlords and tenants, remains the continuing shortage of property. This is adding to affordability problems for first-time buyers, while rents have also been rising.

“Buy to let does, however, improve quality and choice for tenants in the private rented sector, while providing an option for those who are unable to fulfill their aspirations to home-ownership in the short term.”

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