Business as usual in buy-to-let

With weakness in the main housing market, buy-to-let remains strong, with rental yields stable, overall returns steady and landlords adding to their portfolios, according to Paragon’s September Buy-to-Let Index.

Buy-to-let is benefiting from growing tenant demand as potential house buyers are less able or willing to take on the commitment of a mortgage for home purchase in the current environment, which is providing a strong platform for rental income. Figures from the Royal Institution of Chartered Surveyors earlier this month showed tenant demand for rented property is at record levels.

Lender support for investors who are acquiring new properties or remortgaging their existing portfolios remains strong, recognising the superior credit performance of buy-to-let assets as compared with the mortgage market as a whole.

Latest CML data shows buy-to-let arrears in excess of 3 months at 0.63%, compared with 1.06% for the market overall. Paragon’s own arrears level is well below that of its buy-to-let peers and the average loan to value of a Paragon landlord is less than 40%.

Nigel Terrington, chief executive of Paragon, said: “Activity in the securitisation and whole loan markets has been muted over the summer and, when investors return in force, credit quality will be top of their agenda. Given the superior, indeed exemplary, credit profile of buy-to-let, we can expect them to favour paper backed by low risk mortgage assets originated by specialist lenders such as Paragon.”

Landlords are also continuing to invest, buoyed by the strength of tenant demand that, according to ARLA’s latest survey, now ‘outstrips supply in all areas of the rental market’. The slowdown in the wider housing market has presented strong buying opportunities to professional landlords that want to add to their portfolios.

Steve Chippendale, a buy-to-let investor in the north west, says: “There is significantly more competition among tenants in the area where I operate and in recent months landlords have been able to push rents up gently when negotiating a new tenancy. Following the recent rises in borrowing costs, owner-occupiers are understandably more reticent to purchase, which represents an excellent buying opportunity for buy-to-let landlords. With a reasonable deposit and careful choice of property, buy-to-let can still make good economic sense, but you do need a long term viewpoint.”

Terrington concludes: “The current housing market is in many respects a positive signal for buy-to-let, which has certain counter-cyclical characteristics relative to the mainstream market. Tenant demand remains buoyant and investors continue to invest.”