Buy-to-let no longer for the novice landlord

Nia Williams

May 5, 2009

This is the belief of Andrew Hagger of Moneynet.co.uk, who looks at drastic changes seen in the buy-to-let mortgage market since the onset of the credit crunch.

Commenting he said: “For anyone thinking of becoming a landlord in 2009 they will be faced with an almost unrecognisable market compared with the one that existed in September 2007. Whilst house prices may have fallen and base rate slashed to a mere 0.5%, many lenders no longer have an appetite for this type of business and those that remain have tightened their criteria considerably.

“Whereas 18 months ago you would have been faced with nigh on 100 lenders to choose from and needing a deposit of just 10% or 15%, the choice of loans has shrunk rapidly with barely 30 lenders operating in this field, with those that are left demanding a minimum 30% or 40% stake from would be landlords.

“Whilst buy-to-let can still prove to be a profitable medium to long term form of investment, we are now seeing a more realistic financing requirement. Unfortunately it was a decade of booming house prices and a ‘me too’ mentality to make a quick buck that has seen both borrowers and lenders get their fingers severely burnt.

“Too many people got carried away with hearing how others were raking in the monthly rental income but without appreciating the potential pitfalls or having the financial back up to cope when things didn’t go according to plan.

“So if unemployment issues result in tenants being unable to keep up the rental payments some landlords will be faced with the situation of having to sell the property in an adverse housing market, losing their initial stake and in some cases ending up with a residual debt into the bargain.

“With some lenders demanding a fee of up to 2.5% of the amount borrowed for just a 2 year loan deal, getting an immediate positive return on your buy-to-let business venture will prove tougher than ever, but for seasoned property investors in it for the long term, the capital appreciation prospects remain.”

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