Buy to let: Small players are the first credit
crunch casualties
By Damian Clarkson 12th March
2008
Buy to let (BTL) investors already at the margins of profitability could be forced
to sell off, while potential entrants to the market are finding their entrance blocked
altogether as the credit crunch begins to take its toll.
The main problem has been the disappearance of the competitive mortgages that were
common place in the days of booming house prices and easy credit. Suddenly BTL lenders
are not only demanding far larger deposits but charging higher rates and turning
away candidates deemed to be a potential risk.
These tighter lending conditions are having a massive impact, with the number of
landlords struggling to pay mortgages increasing by 25% to 7,600 in the final quarter
of 2007, according to the Council of Mortgage Lenders.
Demand is for houses not flats
Making matters worse is the fact that demand for family homes is far higher than
for flats, and of course larger homes require far more capital. All of this is set
against the backdrop of falling yields, down from 10% in 2001 to 6% in December
2007. Small wonder then, that investors are turning away.
Research from the Royal Institute for Chartered Surveyors (RICS) shows that new
landlord instructions – which indicate the level of supply – have declined for the
first time in the ten years it has been monitoring the sector. But it is mainly
the smaller players who are feeling the pinch.
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Bigger players are smiling
What is frustrating for them is the fact that the same factors causing them to struggle
are also driving up rental demand, as many households find themselves unable to
afford a home. That means it’s left to the larger, more established investors to
reap the rewards – RICS says gross yields have increased at their fastest pace since
the third quarter of 2005.
"While banks remain cautious about offering loans, demand for rental property will
continue to increase with many would-be-buyers unable to make the jump to home ownership,”
says RICS spokesperson Barry Hall.
"Established investors continue to reap the benefits of the current uncertainty
in the housing market and have been enjoying the fruits of rising rents, but new
investors are struggling to get the necessary finance to enjoy this buoyant sector.
Some landlords at the margins may desert the market after the drop in capital gains
tax occurs in April.”
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Article produced by EveryInvestor.co.uk
