Buy-to-let lending profile deteriorates

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by Gill Montia

In its overview of mortgage arrears and repossessions for the third quarter of the year, the Council of Mortgage Lenders (CML) has described the payment profile of buy-to-let lending as worsening more rapidly than the market as a whole.

At the end of September, 1.58% of buy-to-let loans were three months or more in arrears (up from 1.10% at the end of June), compared with 1.44% of all mortgages.

The payment profile of buy-to-let mortgages has historically been superior to that of the overall market and according to the Council, the change during the third quarter of the year is connected to falling rents and an over-supply of rental property, in certain areas.

Both have resulted in some landlords struggling to support their borrowing commitments.

In addition, the housing market downturn has meant that selling is no longer an attractive exit strategy.

However, the number of buy-to-let repossessions during the three months to the end of September was in line with the two earlier quarters of 2008, at 900.

The figure represents 0.08% of all buy-to-let mortgages, compared with a whole of market percentage of 0.1%.

The CML is predicting that repossessions in the buy-to-let sector will increase, although any rise may be tempered by lenders choosing to appoint receivers of rent as an alternative to repossession.

Lenders can apply this strategy when a landlord is unable to keep up mortgage repayments but tenants are paying their rent.