Last week banks and building societies said their lending to landlords was at its highest in five years, and more than 30pc higher than last year. This rapid growth – far outstripping the lacklustre growth in the mainstream, owner-occupier mortgages – is a part of a seismic change in Britain’s housing market.
On the one hand more people are renting, and renting for longer. On the other, more people are owning multiple properties to let. Lenders are playing a part in this social shift. For them, buy-to-let loans are good business where down payments are often large and the rental income a good security.
Low interest rates, the perennial subject of these pages, are another factor, because they encourage investors to seek higher returns on their capital than is available from the bank. Low interest rates also translate into cheaper mortgages, giving landlords higher yields. So this “boom” phase of the buy-to-let sector is set to continue.
But this shift in the housing landscape is causing unease and anger. And individual lenders, it seems to me, are coy about just how much business they are doing with landlords. You have to dig quite deep into the accounts of any one lender to get an idea of the scale of the business. Nationwide Building Society, for instance, lent £3.3bn to landlords in its last accounting year, representing a fifth of the market.
Against the wider backdrop of Nationwide’s entire mortgage book – over £135bn – the figure is small. But, interestingly, it is a hotspot of growth. Many of Nationwide’s regular owner-occupiers are repaying their loans quickly, causing that bigger part of the society’s lending book to grow relatively slowly. Landlords by contrast are taking on new debt, rather than repaying it. So looking at Nationwide’s lending on a “net” basis – after repayments are taken into account – I estimate that for every £3 lent to home owners living in their property, the mutual is currently lending £1 to landlords.
Mainstream mortgage business is now picking up, Nationwide says, but clearly if its lending continued in the same pattern the proportion of borrowers who are landlords would rise over time. As at the end of April, “specialist” mortgages – almost all buy-to-let – made up almost 16pc of Nationwide’s loans. That is up from 12pc in April 2010.
Readers logged on to telegraph.co.uk/money last week to debate the wider subject of the buy-to-let boom. This is what one said: “I have savings in the Nationwide, but that will end tomorrow. I invested thinking I was helping people buy their first homes, not buy-to-let landlords.
“This was not what building societies were set up for. Banks are as much to blame. No one going to a bank with a business idea and collateral could get a loan over 25 years – but landlords can.
“My money is out of Nationwide tomorrow and a strong letter to the chairman will follow.”
Nationwide’s chairman will doubtless reply that landlord lending is profitable and as such helps all members of the society, including first-time buyers, where Nationwide has a good record. But the discontent and controversy surrounding buy-to-let are likely to grow.
Other lenders are also in the spotlight. Lloyds Banking Group is probably the single biggest lender to landlords, something that many taxpayers – who rescued the giant group in the midst of the financial crisis – will find disturbing.