Credit crunch hits buy-to-let sector

By Jennifer Hill

LONDON (Reuters) - Liquidity woes are starting to hit buy-to-let property investors, as the availability of mortgage debt shrinks, a survey shows.

Instructions to let residential properties fell in the fourth quarter of 2007 -- the first decline since the Royal Institution of Chartered Surveyors (RICS) started its survey in 1998 -- as lenders tighten their criteria and the range of mortgage products narrows.

Mortgage hunters are facing increasingly tough times as the market shrinks and lenders re-assess risk in the wake of the credit crunch.

Cheap products have been pulled and rates on remaining ones hiked, maximum loan-to-values cut and lending criteria tightened, making it harder for people, especially those with a poor credit rating, to obtain a home loan.

However, the RICS survey also showed that demand for rental properties has continued to grow, and yields remain on an upward trend.

A total 16 percent more chartered surveyors reported a rise than a fall in tenant lettings, down from 20 percent in the last quarter.

Demand for family homes remains stronger than for flats due to an oversupply of new build properties, the data shows.

At the same time, gross yields in the three months to end-December increased at their fastest pace since the third quarter of 2005, a factor that might have helped to curb a sell-off.