11th February 2003

In the survey of Buy to Let trends for the last three months of 2002, carried out for the ARLA Panel of Mortgage Lenders, the average Buy to Let mortgage loan fell sharply in Prime Central London and rocketed in Scotland and Northern Ireland.

The average loan in Prime Central London fell 22.5% from £198,800 to £154,100. However, in the rest of Central London average loans rose by 4.9% to £146,600 and in the rest of Greater London they rose by 3.0% to £112,900.

Average loans across the South of England rose by over 10% and in the Midlands by 11.3%. The North of England saw relatively unchanged loan values but in Scotland and Northern Ireland the average value of loans rose by 13.8%, from £58,100 to £66,100.

However, taken nationally, the size of the average loan rose by only 0.6%, to £82,700, in the last quarter of the year compared to the previous summer months.

These trends were reported by members of the ARLA Panel of Mortgage Lenders, which includes Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and Standard Life Bank.

The South showed a sharp decline in the total number of loans, with monthly lending levels falling by a third. In the six months to September last year there was a monthly average loan of £88.6 million. In the three months to December, the monthly average fell to £60.1 million, a drop of 32.2%. Buy to Let lending remained steady in the North.

The most popular interest rate type for Buy to Let loans made during the last quarter of 2002 remained the fixed rate type, which accounted for 27.8% of all Buy to Let lending by the ARLA panel. 23.5% of loans were arranged with a discount rate and only 16.7% were lent at Standard Variable Rates.

Compared to the six months to September 2002, the main change in preference was the reduction in fixed rate loans from 40% to 27.8%. This was in favour of LIBOR and Base Rate linked loans which increased from 22.3% to 31.9%.

The choice of interest rate types saw major regional variations. Prime Central London and the North East preferred fixed rates, the North went for LIBOR and Base Rate Tracker mortgages, while investors in the rest of London and Scotland and Northern Ireland looked for discounted rates.

In all regions most Buy to Let lending was interest only with no form of planned capital repayment. Interest only was least popular in Scotland and Northern Ireland, where only 55% of all loans were on an interest only basis, compared with 84% in Prime Central London.

Commented John Crossley, Chairman of ARLA, “Taken overall, these figures suggest that Buy to Let investors are buying modestly priced property and perhaps reducing their customary levels of gearing at the same time, to keep the risk factor at acceptable levels. With the switch to Tracker mortgages, investors also appear reasonably confident that they have properly worked out their rental income and costs. They also appear to have expectations of low or no base rate changes in the near future.”

February 03 Lending Trends Report

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