Saturday, 15 December 2007

Buy-to-let - its over baby

It was on the front page of the Financial Times, which means it is official. The buy-to-let craze is over; it is dead and finish. The credit crunch killed it off.

There is simply no more financing out there for lenders. Loan criteria is tightening up, and despite the recent Bank of England cut, mortgage rates are rising.

Today, the FT reported that the number of buy-to-let products available to would-be property investors has halved since July. As for subprime buy-to-let mortgages, they have "virtually ceased to exist".

Most lenders have taken the exit. Landlord Mortgages, a buy-to-let broker, reported that "only two or three big lenders were taking on any sizeable amount of new business." Those lenders still active in the market "have introduced blanket rate rises, increased deposit requirements and cut the amounts they are willing to lend." Furthermore, many lenders have pushed up rates as a discreet way of exiting the market.

Valuations are also tanking. Liam Bailey, head of residential research at Knight Frank, reported that one in ten larger sales were being delayed because lenders had valued the property at less than the asking price. Meanwhile, many lenders are also increasing loan-to-value requirements.

Without mortgage financing, prices will crash. Forget about the Bank of England, as far as the buy-to-lend bubble is concerned, has become a marginal player. Further interest rate reductions won't help. Banks have suddenly rediscovered risk. Market forces will take it from here, thank you very much.

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