Panic selling by landlords could turn slump into rout

Panic selling by landlords could turn slump into rout

Will buy-to-let loans turn into Britain's equivalent of US sub-prime? The number of buy-to-let mortgages has spiralled to 1.1m from 120,000 in 2000, with easy lending and rising house prices creating a new army of amateur landlords. But as Bradford & Bingley reported a sharp spike in arrears yesterday, fears are growing that a panic sell-off by landlords could turn the property market downturn into a full-scale rout.

Until now, lenders had been confident that investment landlords would weather price falls better than the wider market. In early 2007, B&B confidently predicted another year of bumper growth. "The arrears figures show that despite some recent reports, the credit profile of buy-to-let remains extremely strong with no increase in the rate of repossessions," it said, adding that the company had "enormous confidence" in the future of the sector.

But confidence evaporated amid falling house prices and a sharp rise in refinancing costs (buy-to-let deals typically last just two years). The number of B&B's landlords at least three months behind with mortgage payments has jumped by more than half, and the number falling into repossession is up by nearly a quarter.

Perhaps most worrying is B&B's admission of a particularly steep rise in arrears in April. So far, the Council of Mortgage Lenders has reported relatively benign arrears, although their figures are only to March. It said there had been only a slight rise in the number.....continued below

Advertisement starts

---

---

Advertisement ends

of landlords failing to keep up with their loans, rising from 0.73% to 0.9%, and still below the wider market's 1.1%.

Sue Anderson, CML spokeswoman, spent yesterday assuring callers that the market was not about to collapse. "We still see buy-to-let performing pretty well ... demand is still strong and the buy-to-let market is counter-cyclical, as when people don't want to buy, they want to rent. We aren't concerned."

Where else will the losses in buy-to-let turn up? One telling figure in B&B's statement yesterday was that the worst arrears were in a book of loans acquired from GMAC-RFC. GMAC was a specialist in sourcing buy-to-let loans through the intermediary market, then selling them on to other lenders. At one time it was just behind B&B and HBOS in gross mortgage advances to landlords. Other lenders known to have bought GMAC-sourced loans include Britannia building society, which also has higher than average arrears on its acquisitions.

But there is a silver lining, of sorts, for the sector. Yesterday bargain hunters were out in force at Britain's biggest residential auction house, Allsop, where repossessed buy-to-let properties were going under the hammer. Auctioneer Michael Linane said: "We are seeing a lot of the one and two-bed investment-type property, and expect to see a lot more. If you're a vendor, you're on the back foot. It's definitely a buyer's market."

guardian.co.uk © Guardian Newspapers Limited 2008