Buy-to-let default rises put in context

Permalink: Buy-to-let default rises put in context
by Gill Montia

Fears for the buy-to-let sector have been heightened by Bradford & Bingley’s (B&B) cash crisis and the news that during the first four months of the year, the lender saw a 52% rise in the number of investment landlords who were at least three months in arrears with their mortgage repayments.

In terms of numbers, the increase means that 3,037 B&B borrowers are having difficulty keeping up with their payments.

The four months to the end of April also saw a rise of almost 25% in the number of buy-to-let repossessions by the lender, to around 700.

However, figures from the Council of Mortgages Lenders (CML) show that while defaults on buy-to-let loans are on the rise, this is from a very low base.

In the first three months of the year, 0.9% of investment landlords were in arrears of three months or more with repayments.

The proportion had risen from 0.73% during the previous quarter but was still well behind the 1.1% average for the residential mortgage market during the second half of 2007.

Turning to repossessions, 0.15% of mortgaged investment properties were repossessed during the first quarter, up from 0.12% during the previous quarter.

While these figures are consoling, there is no doubt that refinancing will have become a headache for many of the one million buy-to-let borrowers in the UK.

A number of lenders specialising in the market, including Edeus, Advantage and DB Mortgages, have withdrawn and the payment shock for those coming to the end of a fixed rate deal can be considerable.

Investors with a £200,000 mortgage switching from a 5.45% fixed-rate loan to one at 6.45%, will need to raise around £200 to cover the increase in repayments.