We may have seen modest improvements in house purchase lending in recent months, with the Bank of England stating the total number of loans approved in August was up 5.6% on July, but the level of lending remains less than half that seen four or five years ago.
Against this constrained wider market, the bounce-back of the buy-to-let sector has created a welcome – and growing - stream of revenue for brokers.
In fact, a recent survey of intermediaries by Paragon reported that brokers saw more than 5% more new buy-to-let business in the second quarter of the year than in the previous quarter, an increase helped by the improving level of mortgage lending in the sector.
In the second quarter of 2011, there were 32,000 loans advanced to buy-to-let investors – 16% more than in the previous quarter. However, there was an even stronger annual recovery, with 29% more loans to buy-to-let investors than a year ago.
While lending is only just a third of the level seen four years ago, buy-to-let is becoming a key area of growth in the lending market.
Such growth in the buy-to-let mortgage market has been driven by a surge in demand from both prospective landlords and current investors who are looking to capitalise on increasingly rosy figures from the private rented sector.
For instance, in August, rents rose for their seventh consecutive month to reach an average of £713 per month across England and Wales according to our latest Buy-to-Let Index.
With rental property prices still well below their historic peaks, gross yields have hit 5.2%, much higher than yields seen in other forms of investment at present. Returns too are looking increasingly attractive for property investors.
Total annual returns have risen for three straight months to 2.6%, and landlords in London – where house prices have outperformed the rest of the UK - have seen an average return of 6.3%, equivalent to nearly £15,000.
With many investors seeing property investment as a safer long-term option than other ventures, such as the stock market, lenders have upped their game to help meet demand.
But it’s not just the amount of lending that is on the increase, but the variety of mortgage products that they have on offer in the last 12 months.
Although several of the cheapest rates have been taken off the market in recent weeks, Moneyfacts latest figures suggest that there are now well over 500 buy-to-let mortgage products available – almost double figure from a year ago, and up 167% from the 189 mortgages in July 2009 at the height of the downturn.
In part, this has been driven by an increased appetite for more complex mortgage deals from the growing number of professional multi-property landlords in the private rented sector.
Mortgages for Business’ latest research suggests that lending options for both HMO and multi-unit freehold block deals have been an area of particular growth in buy-to-let lending.
Product diversity – not to mention a growing number of buy-to-let borrowers - brings with it greater opportunities for brokers and intermediaries.
Following the shift in the average landlord from an amateur speculator to a professional, multi-property long-term investor since the downturn, buy-to-let borrowers now need specific advice from brokers on how to tailor their borrowing according to their unique portfolio and financial situation.
With a greater range of products to choose from, brokers play an increasingly invaluable role in advising clients which of the many options on offer would be the best option.
As a result, the Mortgage Works predicts that buy-to-let will soon make up 25% of a broker’s mortgage business.
But the growth of the buy-to-let brings with it other financial opportunities for brokers.
When expanding their portfolio – or even entering the sector, many investor landlords will not just be looking for mortgage advice, but for insights and recommendations for proven letting agents and property managers.
As a property manager with a reputation for consistent quality of service we often receive recommendations – but we are now incentivising leads as part of our plans for growth.
For instance, we have launched a referral incentive scheme for brokers, offering £100 per property that LSL Corporate Client Department lets on the back of a broker’s introduction paid annually following the introduction.
For brokers with large-scale landlords as clients on their books, additional lead schemes could prove to be a handsome – and growing – supplementary source of income each year.
The revival of the buy-to-let sector and its rising importance to the UK’s housing market has created a rare area of growth in what is still a rather sluggish mortgage market.
This is not just good news for prospective landlords; it’s a real boost for brokers also, opening up new avenues of opportunity for savvy intermediaries and introducers.
