MORTGAGES for buy-to-let purchases rose by a record 39 per cent in the second half of 2005, according to figures released by the Council of Mortgage lenders.

While lenders advanced 130,400 loans between July and December, the value of lending also increased by a record 47 per cent to £14.6billion.

Buy-to-let mortgages now make up eight per cent of the total lending market.

There was a softening of lending criteria during the period. The average maximum loan-to-value ratio for buy-to-let lending is now 85 per cent, and lenders expect monthly rental income to exceed mortgage payments by at least 25 per cent.

At the same time, however, the proportion of buy-to-let loans in arrears of three months or more declined, from 0.7 per cent to 0.68 per cent.

This proportion was lower than for the mortgage market as a whole, where the number of loans in arrears increased slightly from 0.88 per cent to 0.92 per cent.

Michael Coogan, CML director-general, said: "There was a notable pick-up in the buy-to-let sector in the second half of last year, so that lending in 2005 modestly exceeded the year before.

"In the wider mortgage market, we saw an 18 per cent fall in the number of loans for house purchase last year, so the strong buy-to-let data may partly reflect increased demand for rental property.

"Despite slowing house prices last year, residential property remains a popular investment, and this is set to continue in 2006."