S&P warns of buy-to-let negative equity risk
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Almost a third of buy-to-let properties could end up in negative equity by the end of next year, according to Standard & Poor’s.
A report by the ratings agency forecasts that more than 30 per cent of buy-to-let investors will be in negative equity by the end of 2012, the Financial Times reports.
The forecast, based on house price falls of 5 per cent this year and 5 per cent next year, outstrips the 17 per cent of owner occupiers that S&P predicts will be in negative equity by the end of next year.
S&P warned that buy-to-let borrowers are more susceptible to a mild fall in house prices and could be more at risk of falling into arrears if interest rates increase, as they tend to have higher loan-to-value ratios.
S&P credit analyst Mark Boyce says: “In the near term, the buoyant UK rental market should continue to support buy-to-let borrowers.”
But he adds: “Interest rate rises are a risk on the horizon. Furthermore, even relatively mild house price declines over the next two years could place more than 30 per cent of buy-to-let borrowers in negative equity, reducing their financial flexibility and risking a rise in arrears.”
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