A growing army of buy-to-let landlords in Britain are now indebted to the tune of £200bn to fund their propriety investments.
This figures were revealed recently by the Bank of England as it worries that the huge amount of money could pose a risk to the banking system.
This staggering figure has grown from around £10bn in 2000 to the what it is today as buy-to-let lending now represents around 15% of all home loans are now to private buy-to-let landlords.
The Bank is concerned as lenders seem to be locked into a price war, cutting their interest rates on offer to entice more would-be landlords into the game, and their fear is that this may only accelerate as pension reforms release more money for people to plough into buy-to-let.
The bank’s worry is that unsuspecting new landlords could be hit hard as interest rates start to rise – many of the buy-to-let mortgages are interest only and are not fixed rates. If a situation arose where investors en-mass were forced to market their properties, prices would fall dramatically and lead to a similar situation to the 2007/8 credit crunch when many mortgages were forced into negative equity.
There is to be a Treasury inspired consultation later in the year into whether the Bank of England should be given more powers to restrict lending to landlords. Ray Bolger of Charcol Mortgages told the Mail on Sunday that the Bank is “itching” to get more powers over landlord mortgages as the sector is the “only part of the mortgage market growing at the moment” and no signs of a change.
There are now around 900 mortgage products available to buy-to-let landlords, triple the number from five years ago. The rates are also closer much to standard residential mortgages than they were as competition between lenders has driven them down.
Back in 2010 the most competitive two-year fix with a 25% deposit was 5.09%, a full 3% above a standard home loan. Today, landlords can pick up a buy-to-let deal at 3.49% which is now only 2% above the standard residential mortgage.
A five year fixed rate buy to let mortgage is now available at 4.3% compared to 6.49% back in 2010. And buy to let landlords are still able to take out the cheaper interest only mortgages which are no longer available to homebuyers.
These deals are costing landlords hundreds of pounds less per year than they were, tempting more and more people to join the growing ranks of private landlords. The surge has been supported by a growing army of tenants priced out of home ownership, due to the need for higher and higher deposits.
Buy to let investors, including many amateur landlords attracted by higher returns than the measly returns they can get from banks and building societies, have swelled the landlord ranks to 2.1m owning 4.6 million homes in Britain – an average of roughly two properties per landlord. This figure is up almost 1m landlords since 2007.
Article courtesy of LandlordZONE