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Lenders letting go of buy-to-let mortgages
April 17th 2008
Lenders letting go of buy-to-let mortgages
In yet another sign of the credit crunch fallout, the buy-to-let property market has been severely hit by the drying-up of lending to landlords.
Sixteen lenders have withdrawn buy-to-let mortgages in the past few weeks, most recently Abbey, The Mortgage Works, UCB Home Loans and Britannia Building Society.
And even those lenders clinging on to the buy-to-let market are introducing stricter criteria for these deals and raising their interest rates and fees. Many landlords now find themselves ineligible for lenders? good deals and are being forced to pay the more expensive standard variable rate. Besides withdrawing some of its buy-to-let deals, Woolwich has introduced a 1.5% fee for its standard variable rate mortgage and also raised rates up to 0.7% on other deals. Last week Natwest withdrew all its buy-to-let rates. Bristol & West announced that it is increasing the cost of deals for landlords from 6.19% to 6.49%.
Most buy-to-let fixed rates are now priced at above 6%, in comparison to rates available to landlords two years ago that were often below 5%. And even competitive rates of below 6% come with heavy fees attached. First National?s 5-year fixed rate of 5.74%, for example, comes with a fee of ?3,799.
The 90% mortgage that has been so popular over the last few years is now a thing of the past, and analysts predict that the 85% loan will be next to go. In the last month alone some 20 lenders have said they will no longer offer 85% buy-to-let mortgages. According to Moneyfacts, there were only 145 such products available as of last week, in comparison to 806 one month ago.
Overall in the buy-to-let market, there were 620 mortgage products available as of last Wednesday, in comparison to 3,662 last summer.
A further problem for many landlords is rental cover ? the amount of rent required by lenders to cover mortgage payments. Rental cover of 125% is now standard, meaning that rental income must be 25% higher than interest payments. For those landlords who may face a shortfall in meeting their mortgages, due to empty rental periods or lack of surplus funds, repossession can be a likely outcome. Furthermore, analysts warn, anyone who took out a mortgage in the past year with less than a 15% deposit is at risk of falling into negative equity and being unable to remortgage, as house prices continue to fall.
Rate increases by all lenders are likely to continue, in spite of the government?s ?50-billion swap facility expected to be available next week. Commenting on this, Lawrence Smith of Decision Homebuyers said, ?While this is a welcome move, the extent to which it will translate into lower mortgages on the high street, and boost the property market at large, remains to be seen.?
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