JUNGLEdrum News

Third of buy-to-lets headed for negative equity


Nearly a third of buy-to-let landlords could be in negative equity by the end of next year if house prices continue to fall, a rating agency has warned.

More than 30 per cent of buy-to-let borrowers could find themselves owing more on their mortgage than their property is worth by the end of 2012, if house prices drop by five per cent this year and a further five per cent next year, according to Standard & Poor's (S&P).

The group said investment landlords would be far more affected by the price slide than owner-occupiers. S&P based its opinion on the assumption that buy-to-let landlords typically had higher loan-to-value ratios on their mortgages.

It said that while 30 per cent of investors were expected to be in negative equity by the end of next year, only 17 per cent of owner-occupiers were predicted to be in the same situation, despite levels being similar at the end of 2010.

Homelet EvolutionThe report warned that the fall in house prices would reduce landlords' flexibility to remortgage and could lead to higher arrears levels in the sector, with higher interest rates likely to make the situation worse.

It added that while arrears in the buy-to-let sector had been consistently lower than in the wider mortgage market before the credit crunch struck, the situation had deteriorated sharply during the recession, as many investors found themselves unable to remortgage, leaving them stuck on high reversion rates.

Mark Boyce, credit analyst at S&P, said, "In the near term, the buoyant UK rental market should continue to support buy-to-let borrowers, but interest rate rises are a risk on the horizon.

"Furthermore, even relatively mild house price declines over the next two years could place more than 30 per cent of buy-to-let borrowers in negative equity, reducing their financial flexibility and thus risking a rise in arrears."


 

Published in: JUNGLEdrum! The newsbeat from PROPERTYdrum

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