Resilient buy-to-let may soften housing downturn

By Clara Ferreira-Marques

LONDON (Reuters) - Strong rental demand will underpin the buy-to-let market and help the country avoid a more painful housing crash, though some investors will be caught out as a number of mortgage lenders exit.

The buy-to-let market has surged in a decade that has seen house prices triple, attracting a range of investors since the market began in 1998 and growing to represent 10 percent of the total market and 12 percent of new mortgages in 2007.

The housing market, which has triped in value in the past decade, has slowed rapidly in the wake of the global credit crunch. Analysts see falls of 10 percent or more this year.

Some inexperienced buy-to-let investors are sure to get burnt, not least those who have snapped up new build city centre apartments, sold at discounts by developers at the peak of the market but now in oversupply in many towns.

But so-called professional investors who make up the bulk of the buy-to-let market will make it through and may even be in a position to expand their portfolios, compensating for higher mortgage costs by raising rents, the sector's top lenders say.

"All our anecdotal feedback is that significant landlords... are absolutely seeing the current market environment as an ideal opportunity for them either to continue to expand their portfolio or to start expanding them again," said Jeremy Law, head of buy-to-let at mortgage lender Bradford & Bingley.

"In many ways (buy-to-let) is counter-cyclical. If these people were not interested and were not purchasing, the slowdown would be far more severe," he told Reuters.

Bradford & Bingley, the number two player in the buy-to-let sector through specialist arm Mortgage Express, has reported strong demand and said this week it would use proceeds from a 300 million pound cash call to continue lending.