New buy-to-let lending declined in the first half of 2008, with the sector affected by the same conditions constraining the wider mortgage market, according to new data from the Council of Mortgage Lenders.
But the rental market is still booming as house sales diminish. The latest Lettings survey from the Royal Institution of Chartered Surveyors found that new instructions to let, an indicator of supply, have increased at the fastest pace in the survey's history.
And the overall picture is one of optimism with both the CML and RICS saying strong demand for rental property will continue.
'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,' said CML director general, Michael Coogan.
RICS said that becoming a landlord is a better option than selling in the current climate. Its survey found that 43% more Chartered Surveyors reported a rise than a fall in landlord instructions compared to 30% in the previous quarter.
Surveyors report that frustrated vendors have been placing their property in the market to let as they have been unable to agree sales due to a lack of demand in the housing market. Demand for family homes remains stronger than for flats.
Rents have continued to rise while house prices fall, driving gross yields upwards and rising profits have kept landlords committed to the market. The proportion of landlords opting to sell at the expiry of the tenant lease fell to 2.1%, the lowest level on record from 4.2%.
'The lettings market is booming with many vendors opting to rent their property while sales in the housing market continue to dry up. Many are willing to hold and await the return of capital appreciation. Becoming a landlord is now an increasingly profitable option with rising rents and yields offering good returns,' said RICS spokesperson James Scott-Lee.
'Established investors have been reaping the benefits of the housing downturn for sometime and will continue to do so in the short term. However, ever increasing supply could have an impact on rental growth as tenant options increase,' he added.
