Buy To Let Market Affected By Credit Crunch
Landlords in the UK are finding it increasingly difficult to maintain any profit from their property portfolios as the buy to let market is continuing to be hit by the effects of the credit crunch.
The first problem is that the number of lenders who offer buy to let mortgage loans has reduced along with the number of products they have available. The liquidity problems being faced by many lenders means that they are limited to the number of loans they are able to grant and as a result are focusing on the residential market, with the effect of reducing the number of available buy to let loan products from 4,384 twelve months ago, to a mere 307, an overall reduction of 93 per cent.
Of those buy to let loans which are available, interest rate costs have increased dramatically, along with rental coverage calculations, whilst loan to value ratios have reduced, meaning that landlords have to find a much larger deposit to fund their purchase and also face the prospect of reduced profits, unless they increase the level of rent charged on the property. Due to these factors, a landlord needs to increase the rent on his property by an average of 15 per cent in order to maintain the same level of profit.
These rent increases have caused further problems as tenants, many of whom are already finding times hard, are unable to meet the new monthly payments and, not surprisingly, Landlords have witnessed a worrying increase in rent arrears, with 13 per cent of tenants going into arrears and a further 50 per cent concerned about being able to pay the rent in the future. Many tenants are now considering buying a house rather than renting, as this is becoming a cheaper option for many, leaving Landlords with vacant properties generating no income, but high maintenance and loan costs.
If buy to let owners decide to get out of the market altogether they still face problems, as house prices are continuing to fall and the market is very weak at the present time. Many who bought recently could well see an overall loss on their investment if they sell at the moment. It seems that Landlords are in a no win situation currently and this does not seem likely to improve in the near future.
