ROOF Blog

The Institute for Public Policy Research has published a report arguing that mandatory lending guidelines for mortgage lenders are needed to ensure that mistakes that resulted in the credit crunch are not repeated. The paper wants a limit on house price to income ratios to around 3.5 times joint income; a halt to self-certified mortgages which do not require documentary support; and restrictions on buy-to-let mortgage to a maximum of 75 per cent of property value. Mortgage lenders would be prevented from offering bulk mortgage deals to developers of new build developments and directors and executives of mortgage lender should not receive performance related bonuses or stock options.

Cities with large numbers of flats bought for the buy-to-let market are facing a huge rise in evictions. In some of these areas there has been a 20 per cent rise in the number of instructions from landlords wanting to get rid of tenants who are not paying their rent. The length of time landlords are prepared to wait before commencing action is also decreasing. Cities affected include Manchester, London, Liverpool and Birmingham.

In the past two years the buy-to-let market has shrunk by 95 per cent according to financial website moneysupermarket.com. The number of mortgages available for rental properties dropped from more than 4,300 in April 2007 to just 213 now, while interest rates have reduced only 1.51 per cent since June last year on buy-to-let mortgages, compared with a 2.6 per cent drop in average residential mortgages as the Bank of England base rate dropped from 5 per cent to 0.5 per cent. Investors also need a 25 per cent deposit at least.

Nine of the biggest building societies have had their credit ratings downgraded over fears that losses from the downturn in the housing market may be ‘significantly higher’ than expected. Alliance & Leicester, Abbey National and Nationwide have seen cuts in their financial ratings by Moody’s, which expressed concern about the level of losses on self-certified and buy-to-let mortgages.

Bradford & Bingley, publicly owned since last September, said that the proportion of mortgage customers in arrears by three months or more surged from 1.6 per cent to 4.6 per cent – or one in every 22 – since 2007. And it warns that worse is yet to come as the arrears rate climbs. B&B’s arrears rate – the highest of Britain’s major lenders – ‘highlighted the woeful credit control that was in place’, according to banking analyst Alex Potter.  More than 6 per cent of buy-to-let and self-certification customers are now more than three months in arrears.

Landlords are buying more properties than they are selling for the first time in two years, research into the buy-to-let sector by the Association of Residential Letting Agents (ARLA). The quarterly survey found, however, that one in five ARLA members is struggling to meet mortgage repayments, and more than one in five reported at least one property on their books being repossessed on a weekly basis. Rental returns have remained largely consistent with returns on flats unchanged at 4.9 per cent, while houses are down slightly from 4.9 to 4.8 per cent.

Nine people have been arrested in a £40 million buy-to-let fraud against Bradford & Bingley. All nine are suspected of overvaluing more than 500 properties in the south of England between 2005 and 2007, and are being questioned on suspicion of conspiracy to defraud and money laundering. Banking insiders say that this is the ‘tip of the iceberg’, and as house prices continue to fall more and more of these cases will surface. Those living in the affected properties have been told that ‘every effort’ was being made to stop them losing their homes.

The rise in the number of unsold properties hitting the rental market has pushed rents down by as much as 25 per cent across Britain. Average rents dropped to £795 a month in February, compared with £950 in May last year, equalling an average fall of 16.3 per cent. The number of new properties available for let has increased by 88 per cent during the past year.

Low interest rates have boosted the investment appeal of buy to let, with agents reporting renewed interest in the sector. According to a recent survey conducted by the Association of Residential Lettings (ARLA), 75 per cent of agents reported a rental yield of 4 per cent of more, with the majority reporting a return of between 4 and 5 per cent – much higher than savings accounts.

Londoners’ confidence in the property market has bounced back according to research from Rightmove. A majority of people living in the capital – 59 per cent – say that now is a good time to buy, and more than half expect to purchase a home to live in this year, with 12 per cent planning to buy an investment property. Nationally, around 50 per cent of people expect to buy a property during 2009, although seven in 10 predict further price falls.