The housing market enjoyed a bounce of relief in 2009, but since last summer both prices and transaction numbers have been sagging, with little imminent sign of improvement. The one bright spot in this gloomy picture is buy-to-let, however. The number of buy-to-let mortgage products now exceeds 500, having fallen to 189 in the dark days of 2009. And the value of buy-to-let loans in the second quarter hit £3.5bn, according to the Council of Mortgage Lenders - a third of the 2007 peak but 40 per cent higher than the previous year.
Admittedly, a little over half that was for remortgaging old properties rather than buying new ones. Nigel Terrington, chief executive of buy-to-let lender Paragon, speculates that landlords may be taking out debt against mortgage-free properties to expand their portfolios. Another explanation is the 'accidental landlord' phenomenon: owner-occupiers who want to move without selling in a slow market may remortgage their first home to fund the deposit for their second.
Even ignoring the remortgage market, buy-to-let lending has been recovering strongly. That's because landlords and lenders alike have been attracted by rising rents. The number of households in the private rented sector has been climbing for a decade, yet the ongoing credit crunch has accelerated the trend by wiping out the market for high loan-to-value mortgages. House building has also slowed to historically low levels in the wake of the crisis, so supply of housing stock is tight.
Rents across England and Wales have consequently risen 4.1 per cent over the past year, according to LSL Property Services, which owns Your Move and other estate agents. Combined with a slight fall in house prices, that pushed average rental yields up to 5.2 per cent. What's more, none of the pressures on rent show any sign of dissipating, so the growth outlook is also encouraging. , including London & Stamford and British Land.
Even allowing for some costs - tenants can be more demanding when landlords increase the rent - a gross rental yield of 5.2 per cent allows for a profitable arbitrage with current lending rates, which have never been lower. Gilt yields and swap rates have fallen sharply over the last two months, and mortgage providers are beginning to pass them on to borrowers with sufficient equity. For investors with a long time horizon, that arbitrage should make up for a few years of stagnant house prices.
