Bradford and Bingley (B&B), the UK’s largest buy to let mortgage lender is being bailed out by a USA based investment firm, but where does this leave the rental market in the UK?
Bradford and Bingley’s recent financial difficulties will cast a further shadow over the mortgage market, particularly the buy to let sector. With a free falling share price, B&B require an urgent cash injection to cover its losses in the UK property market, so the deal with Texas Pacific Group for £179m and a further £258m of capital raised from shareholders, will help the lender survive through these difficult times.
It is the reason for B&B’s difficulties that causes concern though, as it brings the current problems in the mortgage industry into sharp focus. The number of its customers who are more than three months in arrears has doubled recently as landlords struggle to meet their mortgage commitments.
With thousands of buy to let fixed term mortgage rates nearing the end of their term, it is likely that landlords will struggle to arrange competitive finance, which will put their rental businesses under more pressure. More landlords defaulting on their loans will only make matters worse for the lenders.
So if there is a reduction in the number of buy to let mortgage products from nervous lenders, or increases in the arrangement fees for this type of mortgage, landlords will come under more pressure to sell their portfolios.
It is to be hoped that a re-financed B&B will retain its dominant position in the buy to let market, and that a general squeeze on buy to let mortgages is avoided. If not, our already ailing property market will suffer further falls as landlords are forced to sell rather than let their properties.
As a sales and lettings estate agent in London we’re actually seing an upturn in buy to let buyers – taking up some of the slack from first time buyers. Cheaper one and two bedroom flats for sale at under £400,000 are moving faster than in June 2007 – particularly in prime areas like Notting Hill, Kensington, Chelsea and Fulham. FTBs are renting – at the same time there is more choice available to buy to let investors looking to expand rental property portfolios in London. Rents – certainly for the cheaper flats are up – so are yields. True, there are fewer mortgage deals available, but buyers with 70% LTV are having no trouble getting mortgage deals – and are profitting at the expense of buyers who perhaps shouldn’t be borrowing in the first place