Tuesday, 30 September 2008

Black Day for Buy-to-Let

Over the weekend the last of the demutualised building societies, the Bradford & Bingley, was nationalised. The demise of the Bradford & Bingley followed hard on the heals of the takeover of HBOS by Lloyds TSB and the Nationwide’s much less publicised takeover of the smaller building societies the Derbyshire and the Cheshire.

Monday saw the fourth largest US bank Wachovia rescued by Citigroup, Benelux banking giant Fortis partially nationalised, the third largest Icelandic bank Glitnir nationalised. The US stockmarket tumbled nearly 7%, it’s largest one day drop ever as the US Congress failed to agree on the $700billion bail-out.

The shock waves that have pounded the financial markets have hit the Buy-to-Let market particularly hard. The Bradford & Bingley owned Mortgage Express, arguably the largest Buy-to-Let lender. It is difficult to believe that the new owners of the Bradford & Bingley (the Government) will offer new mortgages to landlords. That means that the UK's largest Buy-to-Let lender has closed it's doors to new lending leaving a huge gap in the Buy-to-Let market.

The HBOS takeover will have a major effect on another huge Buy-to-Let lender Birmingham Midshires, part of the HBOS group. Companies like UCB, Mortgage Works and Cheltenham & Gloucester all pulled Buy-to-Let mortgage deals. Paragon, previously a huge Buy-to-Let lender, has yet to return to the market.

The Bank of England also reported on Monday that new mortgage lending had collapsed in August down 70% from August 2007. The Land Registry reported on Friday that house prices fell again in August this time by 1.9%.

Buy-to-Let lending is now a major casualty of the Credit Crunch. There are fewer lenders offering even fewer mortgages. The amount that lenders will lend is now considerably less than just 12 months ago. Fees have risen steeply. We believe that this situation will get even worse and talking to industry experts we have been unable to find one who thinks that things will get better before the end of 2009.

The best estimate is that the current banking crises will last for between 18 months and two years before we see any return to normality.

The message to Landlords is that you should focus on cash flow. There are still Buy-to-Let mortgages available so if you have fixed rate deals coming to an end over the next few months you should be looking at your options now. With house prices falling loan to value is becoming critical. We strongly urge Landlords to review their lending now to ensure that your cash flow is sustainable over the next 18 to 24 months.

We have Buy-to-Let experts available throughout the UK to help you decide the best course of action to take, click Mortgages through NetRent.co.uk for more information.

There seems to be little doubt that we are all destined for a very bumpy ride over the coming months. Landlords who prepare, control their costs and manage their properties well are likely to survive and succeed. Landlords who fail to properly manage their business are likely to become victims of this Credit Crunch.