Buy-to-let is still buoyed up

The buy-to-let market looks set to continue thriving despite falling house prices, commentators said today.

There have been concerns that a drop in the value of property could cause investment landlords to dump large numbers of homes on to the market in a bid to cash in on recent price gains, further depressing values.

There has also been speculation that buy-to-let investors could struggle to refinance in the current mortgage market as lenders continue to tighten their lending criteria, leading to forced sales.

But figures from the Association of Residential Letting Agents (Arla) suggest that the majority of landlords are well positioned and are happy to sit tight and ride out the storm.

Research carried out for the group found that nine out of 10 landlords have no intention of selling properties if house prices fall, while 46pc plan to increase the size of their portfolios during the coming 12 months, seeing price falls as a buying opportunity.

The majority of landlords are people who have been in the sector for many years, owning an average of seven properties each and planning to hold on to them for about another 17 years.

They also have very low gearings, needing to borrow an average of just 57pc of each property's value.

Meanwhile, the housing market downturn means demand for rental properties is soaring, which is in turn pushing up rents.

Arla spokesman Malcolm Harrison said buy-to-let landlords saw their investment as being long-term and they were not looking to make rental profit but just to cover their costs.

"When we get falling house prices, rental demand goes up," he added.

But within the figures, it is possible to see evidence of another type of investor: someone who is not a professional landlord but who has a day job and is investing in property to supplement his or her pension.

Half of all landlords in the Arla survey had only one or two properties, while nearly a quarter had loan-to-value ratios of 75pc or more, and 16pc had been a landlord for a year or less.

This group is also expected to be able to cope with the current difficulties in the housing market, and they are also unlikely to be tempted to sell due to price falls.

Mr Harrison said these investors tended to view their buy-to-let properties as a form of pension, and as such were generally happy to subsidise any void periods or increased mortgage costs using their savings, viewing it in a similar way to making contributions to a traditional pension.

Figures from the Council of Mortgage Lenders show there has been strong growth in buy-to-let lending since the group first began collecting figures on the sector in 1999.