Weaknesses emerge in buy-to-let

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by Gill Montia

Earlier this week, the Young Index, a quarterly gauge of market sentiment within the buy-to-let sector, showed continued optimism among property investors.

However, weakness in the sector is emerging and new figures from estate agents Hamptons, show a sharp fall in the sector’s share of purchase mortgages, that is to say mortgages that are used to buy houses.

In November purchases by landlords accounted for 18.4% of Hamptons’ mortgage sales, compared with 43.8% in October.

During November, buy-to-let remortgages arranged by the firm increased by 6.2%, indicating that landlords are refinancing existing properties rather than buying new ones.

In recent months, property experts have been warning that weakness in the buy-to-let sector could accelerate a house price crash.

The activities of landlords have helped to fuel house price inflation in the plast few years and as house prices stagnate (or even fall), and credit conditions tighten, some analysts are fearful of a mass sell-off by landlords.

Jonathan Cornell, managing director of Hamptons Mortgages, comments: “It appears that some buy-to-let landlords have had their confidence dented as a result of the recent credit crisis. Amateur landlords will have suffered the most and many may have held off from purchasing new properties – presumably in the hope that the market will begin to calm.”

Analysts at Credit Suisse, the investment bank, have already warned that the UK’s housing market could experience a more serious slowdown than many expect if buy-to-let investment dries up.