Another week, another sign of recovery in the housing market. Banks extended 25,100 loans to first-time buyers in May, according to the Council of Mortgage Lenders - 42 per cent more than in the same month in 2012. What’s more, the average loan-to-value ratio of those loans jumped from its post-crisis range of 80-81 per cent to 83 per cent. Banks are climbing back up the risk curve.
This is a double-edged sword for landlords. On the one hand, it is highly likely to boost house prices and thus property owners’ paper profits. On the other hand, it may well also increase tenant turnover and sap rental growth as first-time buyers vacate their rented accommodation.
There is some evidence this is starting to happen. Surveys of lettings agents suggest the market remains tight, with more eager tenants than properties to house them. But the implied slack in the system has recently increased to its highest level since 2009. Moreover, an experimental index of private-sector rents first published last month by the Office of National Statistics found that English rents were growing at about 1.3 per cent a year - down from 1.5 per cent last autumn.
The rental indices published by the agency networks tend to show stronger growth, probably because they are based on new lettings only. Yet they also suggest that rents are coming off the boil. Countrywide reckons they were 1.4 per cent higher than the previous year in the second quarter, down from 2.4 per cent in the first quarter. LSL, which publishes monthly data, meanwhile reported that the annual average growth rate fell from 4.2 per cent in March to 3.9 per cent in April and to 3.5 per cent in May.
We argued in our May special report that the rise of the private rented sector was structural as well as cyclical. True, the return of high loan-to-value mortgages will slow its expansion by helping more affluent tenants to buy. Yet it will also support the high house prices that make home ownership inaccessible to the masses except at today's exceptionally cheap mortgage rates. Besides, as the 1995-2007 boom showed, the private rented sector can thrive even in a buoyant lending environment for first-time buyers.
All this suggests it remains a good time to be a landlord. Alternatively, Aim-listed lettings agent Belvoir (BLV), which we tipped back in December (Buy, 116p, 13 Dec 2012), offers a hassle-free play on the same theme. Buy.
