Number of UK investors refinancing increases as 'buy-to-let' loans hit three-year high

A refinancing drive rather than a pick-up in demand for investment properties has caused “buy-to-let” investor loans to soar to a three-year record high in the UK, according to figures from the UK’s Council of Mortgage Lenders.

There were 32,000 buy-to-let loans, worth £3.5 billion ($5.3 billion), taken out from April to June 2011, the highest number and value since the last quarter of 2008.

However re-mortgaging accounted for 65% of the overall increase in buy-to-let lending in the quarter, with the value of the 15,230 loans for re-mortgage at £1.6 billion, 27% higher than in the first quarter, and accounting for 53% of the total gross buy-to-let lending – up from 51% in the first quarter.

The quarterly result were described as encouraging by Council of Mortgage Lenders director general Paul Smee, who says first-time buyers are not being replaced by “buy-to-let landlords”.

However, figures are still well down on the highs of 2007, when the value of buy-to-let mortgages numbers reached 346,000 and a cumulative value of £44.6 billion

Source: UK Council of Mortgage Lenders

Gross mortgage lending totalled an estimated £12.9 billion in September. This represented a 2% decrease from the £13.1 billion lent in August but was 4% higher than September 2010 (£12.4 billion), according to the Council of Mortgage Lenders.

Gross lending for the third quarter of 2011 is estimated at £38.6 billion, a 15% increase from the second quarter of this year (£33.5 billion) and a 2% increase from the third quarter of 2010 (£37.9 billion).

The Bank of England reported in its Credit Conditions Survey that demand for buy-to-let lending increased significantly. Respondents to the survey expect demand for secured lending for house purchases and buy-to-let properties to be broadly unchanged in the next three months.

Buy-to-let mortgages are provided for investors to purchase a property to rent out privately to tenants and have been a fixture of the UK mortgage market since the late 1990s.

Rates and fees on buy-to-let mortgages are generally higher than those for owner-occupier mortgages due to the perception that they are riskier loans. Interest costs from buy-to-let mortgages can be deducted from the taxable portion of rental income to reduce an investor’s tax bill.

In Australia, the September APRA statistics show that about 31% (or $323 billion) of all mortgages arranged by banks are for property investors.

Recent statistics compiled by mortgage broker AFG for September show the percentage of loans sold to investors rose to 37.7% compared with 34.5% a year ago.

In Australia line of credit (or home equity) loans have traditionally been the most popular types of loans used by investors to buy an investment property.

However, AFG figures suggest investors are opting for fixed-rate loans rather than equity loans as lenders continue to discount their fixed loan offerings.

Over September the percentage of fixed rate loans sold by AFG brokers rose from 9.4% to 16.6% while equity loans decline from 9.6% to just 7.7%.