Buy-to-let mortgages hit one million as house prices tumble

The figures add to mounting evidence that the decade-long house-price boom is over, with prices falling across the country.

Britons have taken out a total of 1.04million buy-to-let mortgages - up from fewer than 30,000 when records began in 1998.

The figures, published yesterday by the Council of Mortgage Lenders, point to the "resilient" popularity of the buy-to-let market.

Investors who typically target flats in city centres are blamed for pushing property prices to a level many locals cannot afford.

Some 23 per cent more buy-to-let loans were approved between June and December last year than during the same period in 2006.

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This was despite the fact that the majority of experts predict house prices have stopped climbing. Forecasts for this year range between stagnation and a fall of up to 10 per cent.

To make matters worse, the gross annual rental yield - rental income expressed as a percentage of a home's current value - is negative for the first time, according to the Association of Residential Letting Agents.

Across Britain, it averages -0.03 per cent and is even worse in regions such as Central London and the South-West.

Buy-to-let investors borrowed an average of £130,000 each last year to purchase a property.

A typical buy-to-let investor is in his or her early to mid-forties, owns between three and five properties and expects to keep them for 17 years.

There are signs that some buy-to-let investors are struggling, with a record number falling behind with mortgage payments.

Between June and December, 0.73 per cent were at least three months in arrears, against 0.58 per cent in the same period in 2006.

But Michael Coogan, director general of the council, said he expected to see "a continuing healthy appetite for buy-to-let mortgages".

The number of people who are renting has soared to its highest level since the Seventies, according to Government figures.

There are now 2.6million households renting in England, compared to 1.9million before house prices started rising. Many are "frustrated renters" who want to buy but cannot afford to.

The average rent is nearly £700 a month, according to Birmingham Midshires, having jumped 13 per cent in a year.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said the buy-to-let boom was likely to slow down.

He added: "We expect to see activity in the sector slacken, reflecting both concern from landlords about the outlook for house prices and the more cautious attitude from lenders in providing buy-to-let mortgages."

The figures come amid the latest warning on the health of the housing sector.

Head of City regulator the Financial Services Authority, Hector Sants, predicted the cheap credit era may be over.

He believes that the crisis in the financial markets will force banks to change the way they do business.

They may have to keep more loans on their own books, rather than packaging them up and selling them off, which could raise the cost of borrowing.

Mr Sants said: "In the old days, banks basically kept the risk on their own balance sheet. When they entered into a transaction with the consumer, they kept the risk of that transaction for the life of the transaction... for the life of the mortgage.

"In recent years they have looked to pass that risk on to another party which took it off its own balance sheet... took it away from its own shareholders."