The credit rating agency says the credit risk of BTL mortgages has been rising on the back of “a relaxation of criteria” in mortgages from 2006 and 2007 vintages.
Based on an analysis of around 200,000 securitised buy-to-let loans, which is about one fifth of the buy-to-let market, three-month arrears were 3.7 per cent at the end of June. The Council of Mortgage Lenders places residential arrears at an average 1.33 per cent.
S&P estimates that between 20 and 40 per cent of all buy-to-let borrowers could fall into negative equity by mid-2009.
Surveillance credit analyst Kate Livesey says: “Older buy-to-let mortgages outperform similar loans made to prime owner-occupiers but newer buy-to-let mortgages are now underperforming, given looser initial underwriting standards and lower absolute growth in rental coverage since origination.”
Exact managing director Alan Cleary says arrears are rising in buy to let because it is a business, not an emotional tie. He says: “People are more likely to put their own home first. Buy to let is a business investment and they are performing worse than prime mortgages.”
Mortgages For Business managing director David Whittaker says: “These statistics are surprising, as many landlords who are in trouble can get a receiver of rent in and freeze the proceedings. They are not like residential mortgages, there is still a person in there paying rent.”
Whittaker says problems in the buy-to-let sector may be short-lived. He says: “Many landlords will be benefiting from cuts in trackers and standard variable rates so any pain being felt now could well be short term.”
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