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The domino effect

The nationalisation of Bradford & Bingley and its subsequent withdrawal from mortgage lending delivered a blow to the buy-to-let market last month as its subsidiary Mortgage Express accounted for around 18 per cent of the BTL market.

In the immediate aftermath of the Government bailout, The Mortgage Works pulled its entire range temporarily in reaction to high demand and HBOS also suspended much of its range.

Moneyfacts stated that the number of buy-to-let products dropped from 662 to 481 in the first two days after nationalisation of B&B.

London & Country Mortgages head of communications David Hollingworth says: “We are missing a number of lenders already. With B&B disappearing we have lost the biggest player. It does have an impact. That said, there are still a number who are offering loans.”

It is difficult to get rates below 6 per cent at present according to Hollingworth, who notes there are some out there but that the client would be forced to pay big percentage fees on this type of rate.

“The LTVs have been battered. It would be very hard to get 85 per cent now and you will pay for it. You are looking to have deposits of 25 per cent or more in most cases. In terms of lending criteria, it is tougher than it was so they are being squeezed from all sides.”

However, he notes there are some landlords who got into BTL a few years ago and are not so highly geared who he thinks will be able to ride out the credit crunch.

The new breed of landlord that has emerged in recent years, spawned by relaxed lending criteria, high LTVs and a booming property market, are likely to disappear in his opinion.

“The new amateurs are going to be gone from the market for some time. That scenario is not going to happen now because people are staying away from the market full stop.”

Mortgages for Business managing director David Whittaker says his firm is only doing a handful of mortgage deals a month instead of the usual 50 to 100 cases.

According to Whittaker, while some of the BTL pricings were just beginning to make sense as swap rates started to come down, following the nationalisation of B&B no lenders are now looking to take on significant volumes of business”The lenders are restricting supply and we are saying to our customers, wait and see what happens. There is certainly no lack of appetite among landlords for buying.”

Whittaker adds that on the positive side of things there is now a strong rental market as first-time buyers are thwarted by the lack of available high LTVs .

“The professional end of the market won’t struggle but the amateur landlords are suffering as to whether they can make up the shortfall or not.”

Landlord Mortgages managing director Lee Grandin expects the BTL market to contract in the short-term, which could be anything up to five years.

He explains: “There will be a contraction of transactions by about 50 per cent. For lenders to go is an inevitable outcome. Mortgage Express is one of those casualties. It is not going to go back to what it was.”

Grandin recommends customers who are looking to remortgage to stick with their current deal for the time being. He says even if a customer has come to the end of their fixed-rate deal, the chances are their standard variable rate will be better than any of the rates available on the market at present.

But he says those landlords with Libor-linked mortgages from lenders such as Paragon and Mortgage Trust should consider coming off this rate and moving onto one linked to the base rate, which is likely to fall in the next few months.

He believes there will be a lot of consolidation in the BTL market and has made moves to protect his own business by branching out into insurance and lettings.

National Landlords Association spokesman Steven Hilton says he does not think BTL mortgages are going to bounce back until confidence in the banking system returns.

However, he adds: “I don’t think the buy-to-let landlord is dead. They are just being squeezed like everyone else.”

Hilton says landlords new to the market are the ones who will be hit hardest but says the average NLA member has held a property for 15 years and they will be able to ride out the storm.

“There is a lot of rental accommodation out there that is not going to be affected by buy-to-let going to the wall. There remains a lot of equity in property from very astute investors.”

The Council of Mortgage Lenders moved to reassure the BTL market last week saying buy-to-let is underpinned by strong fundamentals that will not change, despite the nationalisation of B&B.

“Financial difficulties may arise, but we are at a low starting point. Only around 1.1 per cent of buy-to-let mortgages are in arrears of more than three months, compared to 1.33 per cent in the wider market. That means perhaps 12,000 buy-to-let mortgages are in arrears, out of a total of more than 1.1 million.

“Meanwhile, the proportion of buy-to-let properties taken into possession is exactly the same as in the mainstream market, at 0.16 per cent. That means around 1,800 properties out of more than 1.1 million.

“Some of the key fundamentals of the buy- to-let market have not been damaged by recent developments and the sector continues to offer good long-term prospects for landlords who take a professional approach.”

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