Rising number of landlords in serious mortgage arrears
Over recent years the housing boom has made the buy to let market an attractive proposition for investors in the UK and a rising number of people have decided to enter the buy to let market in order to invest in their future. However, last summer brought with it the global credit crunch, which has become a household term and has wreaked havoc in the financial markets for many months causing all sorts of problems.
Two of the sectors that have been seriously adversely affected by the global credit crunch are the housing market and the mortgage market, and lenders, borrowers, sellers, buyers, and landlords have all felt the effects of the problems that have hit these sectors. A rising number of homeowners have faced repossession as a result of being unable to keep up with rising mortgage repayments and being unable to get a more affordable mortgage elsewhere, and a recent report has shown that this is a problem that is also now affecting landlords.
According to industry officials the number of landlords that have fallen three months behind with their mortgage repayments has now smashed through the ten thousand barrier, and many think that the situation is set to get much worse. This is because many landlords originally took out low interest rate deals several years ago, and the low rate period is due to expire. For many the tighter credit conditions mean that they will be unable to remortgage to a better deal, and most will be unable to get the same sort of loan to value offer as previously.
Furthermore the situation is made worse by the fact that house prices are falling month on month, and are now said to be 10% lower than this time last year. This will leave landlords that have entered the buy to let market more recently facing negative equity. Officials claim that many landlords could be forced to sell their properties early if they cannot afford the repayments in order to avoid repossession.
One industry official that was involved with the research stated: “Borrowing to invest can be a hazardous strategy, just as much with property as with any other form of investment, because you magnify losses as well as gains. This was as true 10 years ago as it is today, and will be in 10 years time when everyone has forgotten the current credit crisis. For the overwhelming majority of the population, buy-to-let should not be seen as an alternative to making regular savings into a pension.”
The global credit crunch has also made it more difficult for those that might have been interested in entering the buy to let market to do so, as availability and affordability when it comes to buy to let mortgages has been reduced over recent months, in the same way as with standard mortgages. Information suggests that each pound invested in buy to let property is now worth considerably less than each pound invested into a pension.
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