The resurgence of property investment has sparked controversy with so many Britons priced out of buying and rents rising rapidly.
The Council of Mortgage Lenders (CML) data showed £5.1bn was advanced to landlords in the three months to the end of June, up 21% on the first quarter.
Bank of England Governor Mark Carney's clear indication yesterday that rates will remain low until at least 2016 is likely to spur further growth in the sector. This is partly because mortgage costs for landlords, already low and falling, are expected to become more attractive. But low returns on other assets including cash are also driving savers toward investments in property.
Overall, lending to landlords remains substantially below its all-time high of £12.7bn in the third quarter of 2007, at the peak of the pre-crisis housing market. But the sector is now mushrooming at a time when wider lending to owner-occupiers is still weak. As a result buy-to-let loans now make up 13% of gross lending, the CML said.
The net lending figures, which are buried in the CML's data, are more telling. These show the rate of growth of lending in the sector after capital repayments are taken into account, revealing the sector's real expansion.
Repayments for the latest quarter totalled £1.7bn, giving a net lending figure of £3.4bn. Net lending in the wider mortgage market is only just edging out of negative territory. The contrast shows how landlord lending has become an area of exceptional growth for lenders.
The biggest lenders to landlords continue to be Nationwide Building Society, Lloyds Banking Group (through its BM Solutions division) and a secondary tier of players including Coventry Building Society and Clydesdale Bank.
George Spencer, chief executive officer of Rentify, the online lettings company, said: "It is not just the residential mortgage market which is picking up dramatically - the buy-to-let market is also seeing renewed confidence from landlords, with the number and value of loans at their highest level in five years.
"This growth is fuelled by a renewed appetite from investors - both experienced and novice alike, along with better availability of buy-to-let mortgages at lower rates and with looser criteria than at any time in the past five years."
He added: "We expect the market to continue to grow at an impressive rate in coming months. We are adding rental properties to our website at the rate of 600 a week and now have 140,000 landlords and tenants registered with us as both sides look for alternatives to traditional high-street letting agents.
David Whittaker, managing director of Mortgages for Business, a specialist landlord broker, said: “The buy-to-let market is in rude health. The Bank of England’s forward guidance on interest rates has given investors more confidence, which should translate into further activity. Rates are at record lows – and now look set to stay that way. Demand for rental property remains red-hot. Yields are north of 6% on typical rental property, and will stay that way while housing stock remains in such short supply."
The CML's head of policy Jackie Bennett said: "Strong rental demand is contributing to the continuing expansion of the buy-to-let sector, but growth is also being helped by improved conditions in funding markets and more widespread availability of mortgages. These conditions are creating more opportunities for landlords to remortgage."
