Mortgage lending for buy-to-let investors surges

Mortgage lending for buy-to-let investors rose significantly during the past year.

Latest figures suggest the total amount of lending to landlords reached £2.7bn in May, up 22 per cent on a year ago.

A total of 19,100 buy-to-let loans were approved, with more than half to those who were remortgaging, according to the data released by the Council of Mortgage Lenders (CML) which represents banks, building societies, and other lenders.

It said gross lending for buy-to-let in May showed little change on the previous month and that remortgaging was the reason for the expansion in the buy-to-let sector since the beginning of the year.

The figures reflect Britons’ increasing love of investing in bricks and mortar in recent years.

And as the economy has improved, house prices have risen and potential investors are seeing the benefits of the sector.

As well as the potential for capital growth, investors are turning to buy-to-let for an income with property investment capable of providing a greater return than the current low interest rates offered on savings accounts. While some savings accounts offer less than 1 per cent return, a buy-to-let investment can achieve typically 5 per cent.

New pension regulations mean even more people could soon be joining the ranks of landlords. The rules state that pensioners can take their money out of their retirement pots in one go and invest it in whatever they wish – and for many that will be property.

Buy-to-let has become so popular that some lenders are being forced to impose tighter lending criteria on their buy-to-let mortgages in a bid to control demand and maintain service levels.

Virgin Money has reportedly cut the number of buy-to-let properties it will lend on and has reduced the maximum a landlord can borrow to finance a portfolio.

The lender will allow landlords to borrow to finance only four buy-to-let properties, compared to the previous cap of 10. The maximum it will lend to a landlord has been cut from £3m to £2m, while the minimum property price it will lend on has risen by £10,000 to £50,000.

It has defended the move publically, saying it wants to focus on its core customers who are amateur landlords. Both amateur and professional landlords can find out more about how to manage their property portfolio at

Other lenders could follow Virgin Money in the coming weeks and tighten their criteria if demand continues.

It comes after the Bank of England expressed concerns that volatility in the buy-to-let sector could pose a risk to the wider financial stability of the country. It highlighted the ease at which mortgages are handed out to landlords, particularly in light of an upcoming rise in interest rates.

However, the CML went on to warn that while buy-to-let continues to expand, the underlying pace of growth is slowing following its strong recovery during the past few years. It suggested Government policies in the buy-to-let sector “may reinforce this downward trend”.

In the Budget earlier this month, the Chancellor announced a reduction in mortgage tax relief for landlords to 20 per cent. It means higher earners who pay 40 per cent tax or more will pay more tax on their rental income.

Time will tell how these Government policies will affect the housing market. But with the lack of homes being built, and house prices continuing to rise, demand for rental properties remains strong – something that paints a positive outlook for buy-to-let investors.