The economic grenades being hurled from the eurozone have lenders running for cover, and sclerotic credit conditions are stopping high street banks from growing their loan books.
The latest statistics from e.surv reveal only 1 in every 100 loans for house purchase were to borrowers with a deposit of 10% or under – a sure sign that the market is struggling.
One of the few areas of the housing market that’s still fighting the good fight is buy-to-let. In fact, buy-to-let investors are helping prop up a sickly looking market.
Property investors are being seduced by record rents (the average rent currently stands at £720 per month according to LSL) and are piling in to bricks and mortar.
Super strict criteria mean the major banks won’t lend to properties in anything other than an excellent state of repair, meaning investors after a bargain can’t qualify for buy-to-let finance until there is a full rental valuation.
The West One Bridging Index shows investors are turning to bridging lenders to finance the development period.
No wonder. Bridging is comparatively risk free for investors because the strong demand for rented accommodation means they can refinance easily once their properties tick all the high street lenders’ boxes. And they are turning to it in their droves.
So far in 2011, 82% of all bridging loans have been to buy-to-let investors, compared to only 70% in 2009.
This demand is helping fuel a rapid expansion of the bridging industry.
The West One Bridging Index reveals gross lending has risen 54% since the beginning of 2010, and net lending is up 46% in the same period. According to our projections, that will propel the value of the industry up to £806 million by the end of 2011.
The demand for buy-to-let finance shows no sign of abating.
Despite the government scheme to underwrite loans to first time buyers, the majority of them will remain marooned in the rental sector, which will keep yields high for landlords.
Major high street lenders will come under even more intense pressure on capital, so look set to rein in their lending even further unless the economy can do a Dunkirk and escape the all out war engulfing the Eurozone.
-DK
