Buy-to-let landlords in mortgage arrears

Sunday 17 August 2008 00:00
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An estimated 10,000 buy-to-let landlords are more than three months behind with their mortgage, according to research from independent financial adviser Hargreaves Lansdown. More may follow and start struggling to meet their repayments as large numbers of landlords are due to come off cheap two- and three- year fixed-rate mortgage deals in 2009 and 2010.

There has been a boom in buy-to-let in the past few years, with such investors making up a large proportion of property buyers. They were able to take advantage of cheap deals from lenders in 2006 and 2007.

But since the onset of the credit crunch, mortgage rates – particularly on buy-to-let deals – have been rising. In addition, many landlords who have bought in recent years may now be in negative equity as average house prices have slipped by around 10 per cent since their peak last summer and are widely predicted to fall further over the coming months. As a result, landlords could be left with a depreciating asset in future and higher repayments on the loan used to buy the asset.

Laith Khalaf, pensions analyst at Hargreaves Lansdown, says: "Borrowing to invest can be a hazardous strategy, just as much with property as with any other form of investment, because you magnify losses as well as gains. For the overwhelming majority, buy-to-let should not be seen as an alternative to a pension."

But Mr Khalaf's assertion about the relative merits of saving in a pension scheme does come with caveats. Like their property investing counterparts, pension savers have not fared well over the past 12 months, with UK share prices tumbling even further than house prices. In fact, the blue-chip FTSE index is down by 19 per cent since June last year. However, pensions are designed as a long-term investment and contributions attract substantial tax relief.

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