Buy-to-let landlords feel the strain

The number of landlords in serious arrears on their mortgage leapt by more than 25 per cent in the final quarter of 2007, as the combined effect of a string of interest rate rises and a tightening in the credit markets began to take their toll on the buy-to-let sector.

According to new figures from the Council of Mortgage Lenders (CML), the number of landlords in arrears on their mortgage by more than three months rose to almost 7,600 during the final three months of last year, up from about 6,050 in the previous quarter. Year on year, the number of landlords in arrears was up more than 54 per cent.

Although sales of buy-to-let mortgages also slowed quarter on quarter, down more than 10 per cent on the previous three months, sales were up almost 11 per cent year on year.

Nevertheless, the CML maintained that rental demand remained strong in the sector, adding that levels of arrears were still well below the mainstream owner-occupier mortgage market.

“Tenant demand for private rented property remains strong, and buy-to-let is fulfilling an important role in helping to deliver an increased flow of high quality homes to rent,” Michael Coogan, the director general of the CML, said. “Buy-to-let has remained resilient in the face of the funding constraints that have affected the sector and the wider mortgage market.

“Many buy-to-let loans have interest rates linked to interbank rates, so may have seen hefty increases in payments when Libor rose to abnormally high levels in the second half of 2007. These are now likely to be returning to lower levels in line with the reduction in Libor rates since December last year.”

Mr Coogan added that he expected to see a continued healthy appetite for buy-to-let properties in 2008.

However, Michael Saunders of Citi European Economics sounded a note of caution over the figures. “It is unlikely that the full impact of the credit crunch is apparent in these data, given that the sharp tightening in mortgage lending standards only really occurred in the last couple of months of 2007,” he said.

“It must be remembered that housing slowdowns usually unfold gradually over quarters and years, and we will probably have to wait for data on [buy-to-let data in the first half of 2008] to see a clearer impact of the credit crunch. But there is a clear hint of worsening credit quality. The share of BTL mortgages in arrears is at a record high.

“Given that rental growth has stayed quite strong by all accounts, the rise in buy-to-let mortgage arrears probably is a side effect of increased borrowing costs. Worse probably lies ahead as the full effects of the tightening in lending standards by mortgage lenders – and resultant rise in mortgage lending spreads – comes through.”

Kelvin Davidson, a property economist at Capital Economics, added: “Two months have passed since these data were collected. In that time, mortgage lenders have only become more cautious and general economic and housing sentiment has deteriorated. In our view house prices will fall this year, and, against that backdrop, we expect a much more subdued buy-to-let sector.”

PROMOTED VIDEO
News
Rob Lowe
peopleRob Lowe hits out at Obama's snub of Benjamin Netanyahu
Sport
football
News
Davies (let) says: 'Everybody thought we were having an affair. It was never true!'
people'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Arts and Entertainment
Over their 20 years, the band has built a community of dedicated followers the world over
music
News
Staff assemble outside the old City Road offices in London
mediaThe stories, the writers and the changes over the last quarter of a century at Britain's youngest paper
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
    Michael Calvin: How we need more Eric Cantonas to knock some sense into us

    Michael Calvin's Last Word

    How we need more Eric Cantonas to knock some sense into us