Freeze in buy-to-let loans deepens, while repossessions rise

Published on Friday 15 May 2009 20:03

LENDING to property investors nose-dived in the first three months this year, it was revealed yesterday.

The number of mortgages agreed for buy-to-let landlords fell for the sixth consecutive quarter to 22,400 in the three months to the end of March, the Council of Mortgage Lenders (CML) reported. The figure represented a 70 per cent slump on the same period in 2008 and was a sharp fall on the 38,000 buy-to-let loans advanced in the last quarter of the year.

Buy-to-let repossessions went in the opposite direction, reflecting the increase in repossessions across all mortgages. There were 1,700 repossessions in the first three months of 2009, up from 1,300 in the previous quarter and 900 in the first three months of last year.

Michael Coogan, director of the CML, said the fall in buy-to-let lending was unsurprising as many lenders in the sector had relied heavily on wholesale markets rather than retail savings to fund their lending.

"Some have therefore had no access to the measures to support capital and new lending that have been available to deposit-takers," said Coogan. "This, along with general housing market weakness, has influenced the decline in buy-to-let lending."

The increase in repossessions was similarly predictable, said Kesh Thukaram, managing director of Smartlandlord.co.uk. "In the current environment, rental arrears are a rising problem for landlords – and increasingly they're getting landlords into arrears with lenders," said Thukaram. "Rental arrears not only disrupt landlords' income streams, but the costs to evict tenants from the rented property are substantial."

Landlords in the buy-to-let sector, which is not regulated, are vulnerable to having properties repossessed more quickly than owner-occupiers protected by formal guidelines. And buy-to-let repossessions are likely to continue rising, Thukaram predicted.

"In the long-term, we are going to see more of this because the most common reasons for tenants getting into arrears with rent is redundancy or some reduction in income," he said.