According to the Bank of England, the Bank of England has seen a significant increase in demand for buy-to-let mortgages in recent months, as landlords try to cash in on the continued boom in rental rates. Some areas in the southeast are seeing buyers put in sealed bids due to the rush to buy rental properties.

In its latest, Trends in Lending ReportThe Bank reported that most UK lenders saw increased demand for buy-to-let loans over the summer. This was reflected in rising rental yields. Rents rose in every region of the UK in September 2011, pushing the average rent to a record high of £718 per month – £1,029 in London – according to the latest LSL Property Services buy-to-let index. Lea Karasavvas (director of broker Prolific Mortgage Finance) says this is driving the demand for properties. “We’re having closed bids with buy-to-lets because there is so much competition in the rental market.”

LSL states that landlords now get an average yield at 5.3%. This is an increase of 5.2% from August. Tenant arrears are down to the lowest point since April 2010 with 8.6% of UK rent not paid or late as of September.

There were 32,000 buy-to-let loans, worth £3.5bn, taken out between April and June, the highest number and value since the last quarter of 2008, according to the Council of Mortgage Lenders (CML). Paul Smee, director general, described this as “encouraging news” and indicated that first-time buyers weren’t being displaced because of buy-to-let landlords.

Matt Griffith, a first-time buyer campaign site PricedOut, disagrees. He said, “In a market in which equity is king,” investors can outbid first-time buyers to purchase lower-level properties. In the housing market, equity is nearly always a result of longevity – which gives older homeowners a head-and-shoulders advantage. The generational imbalance in housing wealth and ownership has increased since the 1940s. We are seeing older people attempting to take advantage of this by investing.

The future for both tenants and first-time purchasers is grim. Prices of houses in large areas of the country remain high, as well as the skyrocketing rents charged to landlords.

The following is an extract from the Association of Residential Lettings AgentsThe problem is not a shortage of supply. Therefore, the government should do more to support landlords. It says the private rental sector is nearing capacity – three-quarters of its 6,000 members believe there are now more tenants than properties, with the increase in demand particularly acute in London and the southeast.

President ARLA Tim Hyatt says that there is a finite supply of rental property. If both the housing supply and mortgage availability improve, renters will have fewer options. We are running out of quality stock for tenants because the government is not doing enough to encourage landlords in investing in new properties. This is evident in higher rents and less choice for tenants.

Greg Clark, a minister for communities and local government, stated in October that private rental is “destroying family lives”. MP also expressed similar concerns. Caroline Flint In the following: speech At the Labour Party conference she stated that she would like stronger rights for private tenants.

Landlords are inclined to favor improved tenure rights such as shorter notice periods for the eviction. Griffith believes that they could also make the market safer. Griffith says that stronger tenure rights would reduce short-term investment flows in the sector, as well as improve the experience of renters who are getting older and need stability for their families, children, and schools.

However, many lenders won’t issue loans for buy-to-let on properties with an assured shorthold tenure in place (typically a term of 6 months and no longer than 12 months).

Griffith states that “it’s not the landlords to blame here, but the bankers.” Halifax and Accord Mortgages, for example, both demand that properties be let on an assured shorthold tenancy basis – although some, including Woolwich mortgages, do not.

The buy-to-let boom could end if lenders and borrowers lose their opportunities. David Newnes from LSL points out that, while rental yields hit 5.3% in the last year, total returns have dropped to 1.8% over the same period due to house prices falling beyond London.

Griffith suggests that banks may underestimate the risks associated with buying to let. “Yields are still very high in historical terms, further falls in house prices seem likely, and tenant arrears continue to climb steeply. These trends could intensify as the UK enters a difficult period in terms of household income.

Available Loans

Although small lenders returned to the buy/to-let market in this year’s mortgage market, the credit crunch has changed.

“Borrowing 85% [of a property’s value]It was very easy to get loans before the credit crunch. The fees were also much lower,” Lea Karasavvas (director of Prolific Mortgage Finance. Now charges of £1,999 are not uncommon and borrowers will find little choice above 75% loan to value (LTV).

Rates are no longer competitive. Adrian Anderson, property funding specialist says there was no significant difference in residential and buy-to-let rates before the credit crunch.

Landlords must have a minimum of a 40% deposit Principality building society is offering a two-year fixed-rate deal at 3.89% and a fee of £999, while Woolwich has a lifetime tracker at a base rate plus 2.98%, with a fee of £1,999.

Other criteria have also been tightened. Lloyds banking group now allows landlords to borrow only three loans from its lender, which includes Halifax and Birmingham Midshires, but the minimum rental requirement is usually 125% of the monthly mortgage repayments.