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Buy-to-let mortgages ‘drying up’

Surveyors say would-be landlords in credit crunch

The credit crunch has begun to hit investment landlords as buy-to-let mortgages ‘dry up’, research showed today.

The Royal Institution of Chartered Surveyors (RICS) said it was becoming increasingly difficult for would-be landlords to enter the market as mortgage products became scarce.

It said the credit crunch had restricted both the number of buy-to-let mortgages approved as well as the variety of products available on the market.

Fewer instructions

The group said difficulties obtaining finance had led to the first ever fall in instructions from landlords since the survey began in 1998.

Overall, 1% more chartered surveyors reporting a fall in instructions than those who saw a rise during the final three months of 2007, compared with 11% more who saw a rise during the previous quarter.

But those who are already in the sector benefited from the current difficult conditions in the mortgage and housing markets, as both demand for rental property and rents increased.

Buyers delay

Around 16% more chartered surveyors said they had seen a rise in tenant lettings during the three months as people put off buying their own property, although this was down slightly from 20% more during the third quarter.

Demand for family homes continued to be stronger than demand for flats due to an oversupply of new build flats that have been bought by investors to rent out.

At the same time, 27% more surveyors said rents were rising than those who reported falls, and although this was down from 31% more during the third quarter of the year, it was still more than double the survey’s long-run average.

Rent hopes

Expectations for the level of rents going forward also picked up sharply to be more than twice the survey’s long-run average, with surveyors feeling more positive about rents for houses than for flats for the eighth quarter in a row.

Rising rents combined with falling house prices helped gross yields increase at their fastest pace since the third quarter of 2005.

The growth in yields also stopped the recent retreat of landlords from the market, with the proportion of landlords selling their properties when their tenant leases expired falling from 6.5% during the previous quarter to 4.6% in the final three months of 2007.

Banks ‘cautious’

RICS spokesman Barry Hall said: ‘While banks remain cautious about offering loans, demand for rental property will continue to increase with many would-be-buyers unable to make the jump to home ownership.

‘Established investors continue to reap the benefits of the current uncertainty in the housing market and have been enjoying the fruits of rising rents, but new investors are struggling to get the necessary finance to enjoy this buoyant sector.’

But he added that some landlords may leave the market after the drop in capital gains tax comes into force in April.

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