More buy-to-let mortgage arrears

Published 09th Jun 2008

The number of buy-to-let landlords in arrears at Bradford & Bingley shot up without the lending giant noticing until too late.

Britain’s tenth largest lender, which is the biggest lender of buy-to-let mortgages, failed to have systems in place that would have revealed the crisis.

Buy-to-let borrowers with B & B who are more than three months in arrears soared from 1,995 to 3,037 in the first four months of this year.

But chairman Rod Kent admitted: “B & B processes are not fast enough. We didn’t become aware of what had happened in April until the end of May.”

Hit by defaulting borrowers, B & B was forced to announce a loss of £8 million in the first four months of 2008, compared with a profit of £108 million last year.

It has now sold a quarter of its business to American private equity house Texas Pacific Group for £179 million, and is looking to investors, including its 850,000 small shareholders, to buy new stock in a bid to raise £258 million.

B & B is now likely to tighten its criteria on new loans and to raise rates, meaning that the credit crunch is likely to get worse before it gets better.

Jonathan Cornell, of mortgage broker Hamptons Mortgages, said: “If Bradford & Bingley raises its rates, other lenders will have to raise their rates too, otherwise they will be besieged by applications, something which lenders are keen to avoid while funding is short.”

He added that several specialist buy-to-let lenders, including Edeus, Advantage and DB Mortgages, had already withdrawn from the market, and Paragon, the third-biggest lender, was sitting on the sidelines.

Nationwide, the UK’s biggest building society, has increased its fixed rates by 0.3% and now charges 6.45% for a two-year fixed-rate deal, costing an extra £37 a month on a £150,000 loan.

There are about one million buy-to-let borrowers in Britain but many landlords are already facing a sharp rise in repayments. A borrower with a £200,000 loan, switching from a deal fixed at 5.45% to one at 6.45%, will have to find nearly £200 more a month to cover repayments.

John Postlethwaite, an independent financial adviser at Punter Southall Financial Management, said: “Private landlords in this situation are faced with a stark choice. To remortgage, they will have to increase the rent, which may not be practical. Alternatively, subsidise the new payments, which may not be affordable. Or sell the property.”

Meanwhile, Mortgages for Business, a specialist buy-to-let mortgage broker, is reporting that lenders are increasingly requiring buy-to-let investors to put down deposits of 20 to 30%.

Source: ' RLA '

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