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Rising damp

Bradford & Bingley’s retreat from the buy-to-let market last week, when it raised rates by 0.55 per cent, looks set to create more pressures on landlords.

B&B is one of the UK’s biggest BTL lenders and advisers say its decision will be a further blow to a sector that has already suffered from rising rates and tighter criteria since the liquidity squeeze began.

Mortgage Advice Bureau managing director Brian Murphy says: “Lenders keep moving the goalposts, which is making it even harder for landlords. On top of that, there are not many lenders operating in the market. CHL Mortgages does not plan to return to the market until later this year, Paragon – one of the main players – is still out of the market and The Mortgage Works and UCB are not really doing much.

“Even vanilla mortgage deals in the BTL market are not stacking up. Rental income requirements have increased, with 125 per cent becoming the norm again, and valuers are being much more cautious. The risk guys at lenders are really running the business right now.”

Sourcing system Trigold had only 258 BTL products on its system last week.

Brentchase Financial Services mortgage specialist Mike Fitzgerald says with such a low number of BTL products available, landlords are going to find it very difficult. He says: “Every time a lender goes out of the market, it makes it that much harder for landlords to get a mortgage. Landlords are going to have to come up with much higher deposits from now on.”

Advisers believe that landlords with loan to values of 85 per cent or more will be hit hardest.

John Charcol senior technical manager Ray Boulger says: “The biggest problems are going to be for BTL customers coming to the end of a deal. In many cases, there will be no deals in the market for them to remortgage on to.”

He points out that this will particularly be the case for the landlords who initially borrowed the maximum loan to value. “You can still get 80 to 85 per cent LTV but a lot of lenders have cut back to 65 per cent,” he says.

Savills Private Finance director Melanie Bien says the market is seeing a lot more 75 per cent and even 60 per cent products. She says: “Landlords do not really like to put too much money down so it will be a bit more pressured.”

Fitzgerald says some lenders, such as Standard Life, are restricting products to 50 per cent LTV. “Landlords are going to have to come up with a much higher deposit if they want a deal,” he says.

Many advisers say they are recommending clients to go on to lenders’ SVRs due to lack of products but several lenders have discontinued their SVR for new customers. Last week saw Skipton Building Society announce that it will no longer accept new BTL business on its SVR.

In April, Woolwich introduced a minimum application fee of £1,000 for all BTL borrowers applying for its SVR. It said the 1 per cent fee had to be paid at the time of the application.

The Mortgage Practitioner sole trader Danny Lovey says: “The BTL market has caught up with every other part of the mortgage market. It is all part and parcel of the non-conforming sector demise. I am concerned about those landlords who are too geared. The rental income will not work for them now.

“There is a lot of pressure on them but it is the same wherever you look in the market at the moment.”

B&B maintains that landlords remain optimistic about the future. Its May BTL confidence study, which interviewed around 8,000 property investors, found that landlords are well aware of market conditions and the nature of their investment.

It says: “There is no doubt that landlords are not immune to the economic challenges facing all of us but these latest results confirm that the vast majority of them have planned their portfolios carefully and kept a close eye on their long-term investment goals.”

Its survey shows that 90 per cent of landlords are planning to maintain or increase their portfolios over the next six months. Only 1 per cent say they are planning to leave the market while 6 per cent say they do not know what they will do and 3 per cent say they plan to decrease their portfolios.

It is clear that landlords with newbuild properties will face a particularly tough time. Fitzgerald says these landlords are suffering falls in price as well as not being able to remortgage. He says: “I really do not know what these landlords will be able to do. Should they stick with their property?”

B&B’s survey found that 59 per cent of landlords have no newbuild properties, 14 per cent have one newbuild property and 14 per cent have between two and five.

It says: “These figures, coupled with an evident increase in demand due to lifestyle choice and economic drivers, prove beyond doubt that BTL is not just holding its own in troubled times but is poised to become even more important to the health of the UK’s housing market. It appears that landlords are capturing this opportunity and are very aware of the part they have to play.”

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