Rents are continuing to rise because lenders are reluctant to lend to both lower-income buyers and to buy-to-let landlords.
As a result, would-be first-time buyers are fuelling tenancy demand – and landlords keen to expand their portfolios are having to turn increasingly to more expensive bridging finance.
Duncan Kreeger, chairman of bridging lender West One Loans, said: “With rents so high and annual returns improving, landlords are trying to pile into the market. But banks and building societies are not only holding back first-time buyers – they’re also being very picky when lending to landlords.
“As a result, short-term bridging finance – which allows landlords to arrange temporary funding for the purchase of a currently un-mortgagable property, pending repairs or improvements – is booming.
“The bridging market was worth about £700m a year in 2010. By the summer, it was already worth about £750m a year and I think bridging lenders will be making gross loans to the tune of £1bn by the summer of 2013.
“But there’s only so much bridgers like us can lend. Until more landlords can get the finance on the high-street to buy, rents will continue to soar.”
Richard Sexton, director of e.surv chartered surveyors, said that lower-income buyers were being both squeezed out of home ownership and having to face spiraling rent bills.
He said: “The cost of renting will continue to rise until the banks can offer appropriate mortgage products to lower-income buyers.
“At present, the banks are being held back by weak economic growth and the spectre of a double-dip recession as well as the regulator’s insistence they hold more capital. They’re in no mood to target first-time buyers.”
He said that there is an ‘ocean’ of would-be buyers who are being forced to rent while lenders continue to demand big mortgage deposits.
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