Leading article: A crisis on the home front

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The Independent Online

Even before Bradford & Bingley, Britain's largest buy-to-let lender, encountered its latest difficulties, the rise of the amateur landlord was one of the more worrying aspects of the property boom. To put things at their simplest, too many people have gone into this market without doing their homework properly.

Since last autumn, the Bank of England has warned repeatedly, though too quietly, that more and more investors have been piling into an overcrowded market. Others too have noticed that oversupply, especially of those "regeneration" flats in city centres so beloved of the Government, has depressed rental yields to the point where they no longer cover the cost of servicing a buy-to-let mortgage.

Investors have thus increasingly relied on the prospects of handsome capital growth to fund their ventures – a position now dangerously exposed. Property prices have fallen for seven months – and by 2.5 per cent in May alone according to the Nationwide. Difficulties in re-financing mortgages, thanks to the credit crunch, have pushed the cost of borrowing higher, causing further pain for investors.

In the short term, in some places, there will be some boost to rentals from first-time buyers locked out of the market by the mortgage famine. But the economics of the private rented sector have turned unmistakably sour. Hence the sharp increase in buy-to-let mortgage arrears on Bradford and Bingley's books; 50 per cent up in four months.

Hence also, we may be sure, a rush for the door as investors try to take profits and run. More repossessed luxury flats in old warehouses and northern terraced houses will be finding their way to auction, there to fetch what they will. It will not be a rewarding experience, except perhaps for the odd bargain-hunting trendy with ready cash in, say, Leeds, Liverpool or Leicester. Relatively small in absolute terms, the buy-to-let sector has the power to destabilise the whole property market, depressing values, shredding household wealth, confidence and spending across the economy in the process.

The scale and speed at which Bradford & Bingley's financial position has deteriorated, and the reasons for it, should cause alarm. For this is a not the familiar story of a bank unwisely buying books of American sub-prime mortgages and then having to write off the debt (though Bradford & Bingley did that too). This is a crisis made at home. It is about a housing crash happening more quickly and growing more vicious than was ever thought possible.