Buy To Let Mortgages
Buy To Let is still going Strong
Now that the 10th year of the buy to let mortgage has gone many are questioning whether the boom is over. The boom in the residential investment market shows no sign of deflating according to the CML. Buy To Let lending set new records in 2006 with the first half being particularly strong: - 152,500 buy to let loans were advanced in the first six months of 2006 worth an estimated £17.5 billion. The residential investment mortgage market now accounts for 8% of the value of outstanding UK lending, compared to 7% in the first half of 2005. Although arrears have started to creep up this only represents an almost non-existent amount (0.73% in arrears for more than 3 months). To make a direct comparison the homeowner mortgage market had mortgage arrears of 0.96%.
Because of stricter lending criteria on buy-to-let loans (an average maximum LTV of 85% with mortgage lenders requiring rental income to be 100%, 115%, 125% or 130% of the mortgage interest repayments) and the type of property investor (typically aged in their 40’s with an average income of £40,000 to £45,000) Buy To Let in the UK property market have performed exemplary.
Landlord’s (Property Investors) are mortgage borrowers who understand the investment decision quite well and that’s reflected in the arrears performance of the book.
Off Plan buying with no money down (cashback on completion of the mortgage) could create a cloud over the buy to let mortgage market. Cases of cashback arrangements with builders that are not declared to the lender , which can result in negative equity from day one; serious over valuations, especially on flats, over inflation of rental value of the property; and defects in newbuilds can create a nightmare scenario.
Buy To Let Mortgage Companies are dealing with these issues as they are starting to lose money. The mortgage companies are examining the property transactions and doing some digging into these issues.
Some less renowned mortgage companies are offering buy to let mortgages to borrowers with severe adverse credit (bad credit) they say there is no good reason to preclude a borrower from building an investment portfolio because of blots on their credit file. However, most buy to let mortgage lenders don’t have an appetite for this market. They say that if you are lending to someone with impaired credit you need a price that reflects that increased risk and then you will hit problems getting the rent to meet the rental requirements. The maths begin to get quite difficult and the higher you go up the risk curve the harder it is to get the maths to add up.
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