Buy-to-let mortgages increased by a massive 16% in November, according to lender Mortgages Direct, the financial subsidiary of Spicerhaart.

The rise followed a steady increase over the past six months as many investors were gearing themselves up for the tax-free residential property investment opportunities in Sipps. This has now been snubbed out by the government, as the chancellor scraped the tax break last week.

Peter Gladdy, director of Mortgages Direct commented: "The original proposed changes to Sipps, where residential property was to become a valid Sipp investment had already boosted the number of buy to let mortgages, as investors were realising the opportunities to boost their pension funds."

"The government’s u-turn on Sipps in the pre budget report is clearly bad news for pension holders who were planning on feathering their retirement nest with tax-free residential property."

"However the renting market is fairly buoyant in this current climate, with many potential homeowners sitting on their hands, waiting to see which way prices will go and therefore opting to rent instead. Landlords are responding proactively to the demand and to the upward trend of rents. The established investor, who takes a long term, professional approach to buy-to-let will continue to buy selectively and carefully."

With the Bank of England refusing to drop the base rate any further this month, borrowers are continuing to feel the squeeze. The number of borrowers opting for interest only repayments has increased to 39% from 26% last month.

"It is surprising that more borrowers are opting for interest only repayment. This is not advisable unless a comprehensive repayment method is in place," said Gladdy. "Borrowers are evidently still feeling the squeeze on their finances. The Bank of England has clearly missed the chance to provide the much needed boost to the consumer and homebuyer’s confidence over the Christmas period."