Buy to Let Market Volumes Fall as Mortgage Supply Weakens

by : Ukbiz

The number of new buy-to-let properties coming onto Britain's housing market has slumped for the first time in a decade, signalling fresh cash flow from lenders is drying up.

A survey by the Royal Institution of Chartered Surveyors shows new rental instructions from landlords fell in this first quarter, unlike at any other time since the survey began in 1998.

The institute said the credit crunch is directly to blame, as banks and building societies have stopped or toughened up their buy-to-let mortgage offerings to would-be landlords.

The survey adds to evidence that Britain's property boom is over: RICS believes prices will fall across Europe; mortgage approvals are already down by a third and prices have cooled from a dearth of first-time buyers.

But because first-timers are still priced out of the market, the average property in Britain went for ?186,045 in January, existing landlords are reaping the benefit s of longer rentals.

The institute said that gross yields - rent as a percentage of a property's value - increased at their fastest pace since the third quarter of 2005, causing retreating landlords to think twice.

Evidencing the good times for established investors, RICS said rental expectations 'picked up sharply' in this quarter in the North, South East and Midlands, with 'modest rises' in London and the South West.

With demand rising, landlords seem happier to stay in the market: the percentage selling their properties during the first quarter this year when tenant leases expired fell from 6.5% to 4.6%.

'While banks remain cautious about offering loans, demand for rental property will continue to increase with many would-be-buyers unable to make the jump to home ownership,' said RICS spokesman Barry Hall.

'Established investors continue to reap the benefits of the current uncertainty in the housing market and have been enjoying the fruits of rising rents, but new investors are struggling to get the necessary finance to enjoy this buoyant sector.'

In the survey, RICS evidenced that buy-to-let investors can expect rising income by pointing out that 27% of surveyors reported rents were rising than those who reported falls.

However, some landlords at the margins may exit the market after the drop in capital gains tax occurs in April.