Mortgage loans increase in sluggish economy

The Council of Mortgage Lenders has released figures showing a 32% increase in buy-to-let loans.

The Council of Mortgage Lenders (CML) recently released figures showing a 32% rise in buy-to-let loans, comparing the first quarter of 2012 to the same period in 2011.

These mortgages, which are used to fund buy-to-let purchases, are becoming more attractive to investors as a result of lower house prices and increasing rents.

According to the CML, just over 32,000 loans, together worth nearly £3.7bn, were given to prospective buy-to-let borrowers. While the figure is down 5% compared to the fourth quarter of 2011, it represents a marked improvement in comparison to the equivalent time frame last year.

As a result, the buy-to-let sector continues to grow and has increased its percentage share of the mortgage market to around an eighth of the total value of all outstanding mortgages.

“The year-on-year rise in buy-to-let lending reflects the state of the overall property market,” said David Whittaker, managing director of Mortgages For Business.

“While the overall value of lending fell quarter-on-quarter, this has more to do with stagnant and falling prices rather than a drop in landlord appetite.”

Separately, the CML said the number of homes repossessed in the UK remained stable in the first three months of 2012, breaking the recent year-on-year trend of rising repossessions.

Pressures on household finances, new welfare benefits changes and rising mortgage rates “all have the potential to disrupt the current stable picture,” according to Paul Smee of The CML.

Yet “combined efforts by borrowers, lenders and money advisers are ensuring that payment difficulties are being managed effectively” and “lenders will try to help them get back on track, as long as this is a realistic prospect,” says Mr Smee.

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