Investors face buy-to-let 'timebomb'

The mass exodus of banks from the buy-to-let mortgage market seen long before the recession began is continuing to thwart would-be investors, new figures show.



Research published yesterday showed interest in buy-to-let mortgage products rose by 50 per cent since August of last year, for both new and existing property.



However the number of buy-to-let deals available has fallen by 70 per cent over the same period, meaning the market has shrunk by more than two-thirds since last year.



This widening gap between supply and demand for buy-to-let mortgages represents a timebomb for investors, particularly those depending on a remortgage.



"New and existing buy-to-let landlords face a difficult task in finding a suitable mortgage," said moneysupermarket.com, which published the research.



The widening gap also indicates tough times for tenants, as while the need for rented accommodation is increasing "there may not be enough landlords" to provide it.



But investors will be more concerned about their own bottom line, as while rates on buy-to-let mortgages have dipped, they remain almost two percentage points higher than those on owner-occupier mortgages.



According to the website's annual figures, the average rate for mainstream mortgages has fallen by 1.95 per cent, while rates for buy-to-let have eased by 1.13 per cent.



"With significantly less products left on the market and high interest rates attached to those available… we could potentially have a ticking buy-to-let time bomb on our hands," said moneysupermarket's Hannah-Mercedes Skenfield.



In addition to the less appealing interest rate, would-be investors must also consider the small print for the mortgage's handling, assuming their application meets the lender's strict requirements.



Ms Skenfield said: "Because banks are targeting safer borrowers for their limited mortgage funds, they have either abandoned or severely restricted their involvement in the buy-to-let market.



"Even if you are lucky enough to meet the tighter eligibility criteria and have found a suitable buy-to-let mortgage product, you must watch out for the fees levied on arranging the deal, as these can be extortionate."



More positively for aspiring investors, the smaller pool of buy-to-let mortgages is being drained by fewer 'accidental' landlords – people who reluctantly rent their homes because they cannot be sold.



Latest figures from the Association of Residential Letting Agents show the number of family homes being rented out has fallen from 73 per cent in November of last year to 66 per cent today.



Ian Potter, operations manager of ARLA, said: "Many sellers were left with little option other than to rent their properties out earlier in the year but this trend seems to be slowly diminishing."



Meanwhile, one married couple whose firm intention as buy-to-let investors saw them amass a property portfolio worth a reported £180m have hoisted the 'for sale' sign over their 700 remaining properties.



The Times reported that Fergus and Judith Wilson, who are 739th in the Sunday Times Rich List, have decided to put their entire empire up for sale, prompted by the recent rise in house prices, which followed several month-on-month declines.



Their decision, based on estimates that the summer upturn in prices has added £1m to their portfolio, effectively brings to an end the couple's 20-year career as property investors.