Mortgage News
Advisers must flag BTL investment risks, says broker
As the numbers of first-time landlords continue to rise, advisers must highlight the risks including potential rate rises, which could triple monthly payments, said an adviser.
Ying Tan, managing director of The Buy to Let Business, said investors need to be able to handle rate rises, if they haven’t fixed their loan, which could “easily double or triple” borrower payments.
“Clients need to be taught to manage risk and insulate themselves against falling prices by making money at the start by buying at the right price. I looked at 80 properties before my first purchase. You need to see what’s out there, be able to make a quick decision, tell the estate agent you can move quickly and buy at the right price,” said Tan.
A report from credit ratings agency Standard & Poor’s out today supports the idea that rising interest rates would destabilise buy-to-let borrowers faster than residential borrowers.
Mark Boyce, credit analyst at S&P, said: “While record low interest rates and steady rents have pushed landlords’ debt servicing abilities to healthy levels, our analysis suggests that a rise in interest rates could cause the average debt service coverage ratio to fall by about 40% by the end of 2012.
“Furthermore, even relatively mild house price declines over the next two years could place more than 30% of buy-to-let borrowers in negative equity, reducing their financial flexibility and thus risking a rise in arrears.”
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Ying Tan said: “The problem can be investors jumping on the bandwagon, looking for somewhere to put their cash without any specialist knowledge of buy-to-let.”
With low returns on deposits and the specialist knowledge involved in building an investment portfolio, the buy-to-let sector has been getting more positive coverage recently, he added.
Buy-to-let specialist adviser The Buy to Let Business announced it had bought residential broker The Good Mortgage Company last week.
Tan said a leads company would be a good investment prospect now confirmed there are no immediate acquisition prospects.
Meanwhile, the number of buy-to-let mortgage deals has risen to 463, the highest level since October 2008, or 151 higher than six months ago.
The number of lenders offering buy-to-let deals has risen from 48 last May to 64 today, according to Moneyfacts. Average rates have also fallen to 4.97% from 5.11% six months ago.