Will buy to let mortgage survive the current market?
At this present time to say that the mortgage market is in a certain state of turmoil would be the understatement of the year. The situation has gone from one where whoever wanted a mortgage could get one to a situation where it is only the people who can afford not to need one will be considered.
Because of the credit crunch, lenders are being very choosy about the sort of customers they want to lend to, and in particular of the sort of customers they want for the future. The act of self certification is well and truly a thing of the past, and the highest loan to value rate at the moment is considered to be around 80%. The days of lending 100% and more against the value of property are becoming the stuff of legend. As such, the main area to suffer in the business, and it is suffering badly, is that of the “buy to lets”.
Buy to let, it has to be said, has fueled a large proportion of the housing growth over the last 5 years. It has been this market that has kept the property market running. That said it has not come without a great cost to both the economy and ordinary people. I say ordinary people because it has been ordinary people buying buy to let and maybe that has been the fundamental problem.
I remember back in the very early 80s car auctions were the main preserve of the motor trade. Ordinary people did not go to car auctions and when they did they looked like ducks out of water. However during this time it became fashionable for a lot of ordinary folk to go and try and pick up a bit of a bargain and polish it and sell it on for a small profit. So we had milkmen, firemen, postmen and just about anyone getting in on the game.
But experience (or inexperience) started to show and the so called bargains were sometimes nothing more than the proverbial pig in a poke. And the outcome was that these guys would get fleeced. It is an uncannily familiar situation to the one that people had found themselves in with regards to the buy to let market. Okay, the amounts of money that were changing hands were different but the point is that people were participating in a market in which they had no prior knowledge, and were buying houses that were way overpriced, in some cases without even seeing what they were buying.
Now I have had ten years professional experience with regards to purchasing property and obviously I don’t mean the house that I live in. I have been involved in the buy to let market and in all that time I have never, nor would I consider, buying a property that I had not viewed. And I would say that this would be applicable to any landlord. So what baffles me is why someone without any previous experience would deem it a sensible thing to do.
The effect of this careless disregard for common sense is that the market is now in the state that it is. And because these people borrowed money from institutions who would end up having to acknowledge the fact that they had taken on risky borrowers, the institutions in turn put severe lending restrictions in place. Even over the last few months loan to value mortgages have tumbled from 85% to 75%. And things may still get worse before they get better as house prices continue to drop.
All this leaves an industry in great turmoil with very little prospect of recovery. What I suggest is, I would like to see forward thinking lenders come out with a professional buy to let product for landlords that have over ten properties. These landlords have already demonstrated they can fund purchases up to now and it would mean that they could get into a market that is quite beneficial for buyers in general. In addition this type of lending would have the result of producing some buyers in the market place which would at least keep the housing market moving at a trickle which is more than it is moving at the moment.
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