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Buy-to-let mortgages set to underperform, says S&P

The U.K. buy-to-let residential mortgage loan sector will soon begin to underperform compared with the overall mortgage market, according to Standard & Poor’s.

The credit rating agency says the credit risk of the sector has been rising on the back of more unaffordable mortgages from 2006 and 2007. As a result it expects that the buy-to-let sector will soon begin to under-perform versus the overall mortgage market on aggregate measures.

Based on an analysis of around 200,000 securitised buy-to-let loans, which is approximately one fifth of the buy-to-let market, arrears were 3.7 per cent at the end of June. The Council of Mortgage Lenders currently places residential arrear averages at 1.33 per cent.

S&P estimates that around 20 per cent to 40 per cent of buy-to-let borrowers could fall into negative equity by mid-2009.

S&P surveillance credit analyst Kate Livesey says: “While older buy-to-let mortgages outperform similar loans made to prime owner-occupiers, newer buy-to-let mortgages are now underperforming, given looser initial underwriting standards and lower absolute growth in rental coverage since

She added that this makes performance of the buy-to-let sector more sensitive to the currently difficult credit environment.

Livesey adds: “We believe that the BTL sector could suffer above-average loss severities on repossession cases due to a concentration of certain property types that are witnessing above-average price declines.

“In a downturn we believe that the current stock of buy-to-let loans will carry higher credit risk than the stock of loans to prime owner-occupiers.”


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Fit for Work: guidance for employers published

On Friday, the Department for Work and Pensions published its guidance for employers on using the new Fit for Work (FfW) service to help ill employees return to the workplace. It also includes more details on the tax exemption for medical interventions that commenced on 1 January 2015.


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