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UK buy to let sector sees increased number of property loans granted

Over the same period, the value of mortgages advanced in the sector grew by 19%. The data shows that the pick up in buy to let lending that began in the second quarter has continued.

In the three months to September, a total of 34,500 buy to let loans were advanced, an increase from 29,700 in the preceding quarter. The value of lending totalled £3.8 billion, up from £3.2 billion. On both measures, buy to let lending was at its highest level since the final quarter of 2008.

The number and value of outstanding buy to let loans also continued to grow. At the end of September, there were 1,378,700 loans outstanding, worth £157 billion, up from 1,296,700 worth £150 billion 12 months earlier.

In the third quarter, there were 18,580 loans for the purchase of buy to let properties, accounting for almost 12% of all house purchase loans. But the proportion remains significantly lower than the former peak in the first quarter of 2008, when 32,650 mortgages for buy to let property purchase accounted for 19% of all loans for house purchase.

In the third quarter, the number of buy to let mortgages more than three months in arrears declined from 28,300, some 1.57% of the total, to 26,300, or 1.45%. There was, however, a small increase in the number of buy to let properties taken into possession from 1,500 in the second quarter to 1,600, although, as a proportion of all buy to let properties, the figure remained unchanged, at 0.08%.

‘With tenant demand remaining strong in the rental sector, some existing buy to let landlords have been expanding their portfolios and the growth that returned to the sector in the preceding quarter has continued,’ said CML director general Paul Smee.

‘The recovery of buy to let from its low point in 2009 has helped improve supply and choice in the rental market. Despite recent improvements, however, buy to let lending volumes are still only around one third of their former peaks,’ he added.

Overall the number of properties taken into possession by mortgage lenders in the third quarter of 2011 was 9,200, virtually unchanged from 9,100 in the second quarter, the data also shows.

The number of repossessions in the quarter equated to 0.08% of all mortgages. This has been the same for five of the last six quarters, with the exception of the fourth quarter of 2010, which experienced a typical seasonal dip, to 0.07%.

So far this year, a total of 27,500 properties have been taken into possession, some 4% fewer than in the equivalent period last year. It now appears likely that the total number of repossessions in 2011 will be lower than the CML's forecast of 40,000.

There was a slight fall in the number of households in arrears with their mortgage across all categories. At the end of September, the total number of mortgages with arrears of 2.5% or more of the outstanding balance fell to 161,600, 1.44% of all loans, down 2% from 165,200 or 1.47% of all loans, and 8% lower than the 175,100 cases or 1.55% of all loans at the end of September 2010.

Despite these improvements there is still a stock of cases with significant arrears. Some 27,300 loans have arrears of more than 10% of the outstanding balance. In addition, the squeeze on household budgets as a result of falling real incomes, cost of living rises and increasing unemployment will negatively affect households, and could lead to increased arrears in the coming quarters.

Extended forbearance by lenders has clearly been successful to date in keeping the vast majority of households facing payment difficulty in their homes, but ongoing pressures remain and the economic backdrop represents a significant challenge to the recent improving trend in arrears.

‘The fall in the number of mortgages in arrears, and the stable picture on repossessions, are testament not only to the beneficial effects of low interest rates, but also to effective arrears management, and good communication between lenders, borrowers and debt counselling organisations,’ said Smee.

‘Against the backdrop of widespread financial uncertainty sweeping both the UK and the wider European economies, it is impossible to be sanguine about the future influences that households may face. But lenders will do their utmost to help borrowers keep their homes, whatever pressures emerge. Anyone worried about their mortgage should seek early advice and talk to their lender: these figures firmly show that repossession does not have to be an inevitable consequence of mortgage arrears,’ he explained.

Paul Hunt, managing director of Phoebus Software said that flat possessions over the last quarter are a triumph of clear and effective communication between borrowers and lenders.

'In the three months to August, the total number of unemployed people in the UK grew by 4.7%, but that hasn’t translated into a rise in repossessions. Partly, this is a result of many borrowers taking advantage of the extremely low rates currently available on the market. But another important factor has been borrowers’ willingness and capacity for forbearance on arrears,' he explained.

'A growing emphasis on servicing functions which are able to quickly identify borrowers likely to have a problem before arrears get out of hand means lenders have had growing success in navigating mortgage borrowers through choppy economic waters,' he added.