Sub-prime fiasco impacts on buy-to-let mortgage segment

28 September 2007
According to mortgage advisors at, the credit crunch is now starting to take its toll on the buy-to-let market.

Mortgage expert at Julia Harris said: “While the prime residential sector has so far been largely unaffected by the sub-prime crisis, the buy-to-let sector is beginning to show signs reminiscent of the sub-prime market over the last few weeks with tightening credit criteria, the withdrawal of products and rising fees.”

In one extreme case highlighted by the company, a lender has withdrawn all mortgage products, while several others have made all tracker rate mortgages off limits. In many cases, rental cover requirement has increased by between five and ten per cent, and arrangement fees have increased substantially.

“Perhaps lenders are just taking a breather, giving them time to evaluate the market and perhaps re-launch with re-priced products, which will more than likely be at a higher rate,” added Ms Harris.

Availability, choice of products and the cost of buy-to-let products seem to be under fire at the moment, she said.

“The trend over recent years has been a falling rental income cover requirement, so with lenders reversing this trend, it’s a definite sign that some are taking a more cautious outlook.” Increases in minimum rental cover required potentially means raising minimum levels of rent to cover mortgage repayments.

Fees have also increased and, although this is not a new trend, more changes are being made and more sizeable increases are being seen. One lender has introduced fees of up to five per cent on fixed-rate mortgage advances, setting a “new precedent” according to

However, an element of hope remains. Ms Harris said: “The outlook may not be all doom and gloom for the buy-to-let landlord as, although borrowing costs are rising, yields are beginning to fall and the potential to gain from capital appreciation is declining.”

“If the residential mortgage market sees increasing arrears, repossessions and first-time buyers continuing to be priced out of the market, the demand for rented properties will undoubtedly increase,” she concluded.

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