FREE groundbreaking Property Investment Newsletter
Added by Gatewayletting on Thu 28 Mar 2007 11:18 BST

"Expert opinion, comment and analysis from property industry insiders brought straight to your inbox."
www.gatewayletting.com/newsletter.htm

Loan Standards for buy-to-lets slide
Added by GatewayLetting on Mon 7 May 2006 10:11 BST

Lenders are offering mortgages to buy-to-let landlords without requiring any minimum rental cover or proof of income, even though returns have sunk to record lows in the 10-year-old market.

Other lenders are offering buy-to-let mortgage loans of up to £20m to help people build up property empires, prompting fears of a bubble in the popular market.

Multi-million pound loans are being offered to people on modest salaries. Some lenders have begun to offer mortgages to people with poor credit histories, even considering those having just emerged from bankruptcy.

The relaxation of lending criteria comes as landlords struggle to cover their mortgage payments amid higher interest rates and rents that have lagged property prices in recent years.

Alex Potter, an analyst at Collins Stewart, said: “It is worrying that the market is becoming more disorderly just as we move towards the top of the property cycle. The case for buy-to-let has been made on low loans-to-value and solid rental cover. It is a concern that these are slipping and lenders are becoming more aggressive just as borrowers are dealing with interest rate rises and inflation surprises.”

The average annual “net yield” on residential property – rent as a proportion of the building’s cost – is as low as 3.5 per cent.

Despite this, one lender, Bank of Ireland, last month lifted its ceiling on the amount of loans it will advance to any one landlord from £2.5m to £20m. The bank says this is aimed at the professional landlord with five properties or more.

Others such as Edeus will lend up to £10m, and Mortgage Express, part of Bradford & Bingley, has lifted its lending limit on property portfolios from £2m to £5m per customer. Woolwich will allow borrowers to build a portfolio up to £5m with loans on individual properties of up to £2.5m.

Lending rules are slackening because banks are facing greater competition – 20 new lenders have entered the mortgage market since 2004, many offering buy-to-let.

Borrowers took out a record 330,300 buy-to-let loans worth £38.4bn last year, up 57 per cent on 2005. Data from the Council of Mortgage Lenders show there were 849,000 outstanding buy-to-let mortgages worth £94.8bn at the end of 2006.

Many lenders have also broken previous rules that they would lend only if gross rent covered mortgage interest payments by 130 per cent. This aims to buffer landlords against periods when the property is unlet and to cover costs such as maintenance.

Lenders are now offering loans to landlords with only 100 per cent gross rental cover. Others like Cheltenham & Gloucester, part of Lloyds TSB, are prepared to lend on salary rather than on rental cover.

Source: Financial Times published 27 April 2007