Tackling the question in this week’s Market Watch are:

David Whittaker, managing director of Mortgages for Business

Chris Norris, policy manager at the National Landlords Association (NLA)

Tim Newman, head of marketing at UK Asset Resolution (UKAR)

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David Whittaker, managing director of Mortgages for Business

Whilst Mervyn King is coming under pressure to raise base rate in the UK, there still appears to be a consensus that nothing much will happen before 2012.

Landlords have generally had a benign two years with low interest rates and improving rental yields. Voids are low and landlords are generally enjoying strong positive cashflow.

The majority have been able to put money to one side against the day when base rate rises significantly.

On a typical buy to let yielding 5.3% where a landlord has borrowed 75% of the value of the property, the cost of borrowing will only become an issue when the interest rate inclusive of margin exceeds 6.25%, having paid letting agents and other associated costs.

The issue for Richard Banks of UKAR, with his buy-to-let borrowers inherited within the Bradford & Bingley Group (BBG) portfolio, is concentration, with a number of landlords who were borrowers of not only Mortgage Express but also GMAC.

GMAC sold loan portfolios to BBG at the top of the market. When one of these landlords experiences problems, the impact is felt across a larger number of accounts.

Many landlords also had loans with American investment banks that have discounted loan balances to encourage early redemption. Some will plead poverty to other lenders in the hope of achieving discounts on further loans and UKAR will be perceived as “fair game” in such negotiations.

Ironically, UKAR is least likely to offer such discounts as it will take the long-term view.

Landlords should only start to feel the pinch in late 2012 moving into early 2013 and those who are highly geared will need to review their options at that time.

Chris Norris, policy manager at the National Landlords Association (NLA)

Running a successful lettings business is no different from running any other enterprise, meaning that the bottom-line is never far from a landlord’s mind. One of the most important considerations for most is the rate at which their property is leveraged.

Across the private rental sector, the average landlord has a portfolio-wide LTV rate of approximately 35%.

This means average borrowing of £443,690 per landlord, according to the NLA’s most recent member research.

Put another way, this equates to an annual increase in interest payments of £2,218.45 for every additional 0.5% applied by their lender.

Therefore, it is fair to assume that most landlords keep a keen eye on their lender’s standard variable rate and the monthly machinations of the Monetary Policy Committee.

It is also important to remember that some buy-to-let specialists have traditionally paid close attention to LIBOR, as well as the Bank of England, when setting their rates.

As this has proven more volatile than the base rate recently, borrowers have had more to concentrate on than Sir Mervyn’s approach to monetary policy.

However, we mustn’t get carried away assuming that an interest rate increase will be the end of buy to let as we know it.

Of the £152bn of outstanding buy-to-let mortgages, only £10bn loans were written in 2010 at historically low interest rates.

This means that the majority of landlords, borrowing before the crunch, budgeted for rates closer to 5% or 6% and, while some have no doubt been assisted by recent low rates, a gradual increase should not endanger their survival.

The private rental sector is likely to prove more resilient than some predict.

Tim Newman, head of marketing at UK Asset Resolution (UKAR)

On 1 October 2010, UK Asset Resolution (UKAR) was established, bringing together Northern Rock Asset Management (NRAM) and Bradford & Bingley (B&B) under shared management and a common board of directors.

B&B has around 240,000 mortgage customers, the majority of which (91%) are up-to-date with their payments. Some 60% of the overall book is buy to let, with an average mortgage of £121,000. Just 10% of NRAM’s mortgage book is buy to let.

The arrears position for B&B at the end of 2010 was an improving one, reflecting tight management of collection activity and, for many buy-to-let customers, the advantageous borrowing rate making monthly payments more affordable.

Customers more than three months in arrears, including possessions, fell from 5.5% to 4.1%, while properties in possession stood at 623, down 339 from the previous year.

Although this is encouraging we are not complacent.

We have a dedicated team in place to support portfolio landlords, either by talking with them directly or visiting them on a regular basis. We seek to ensure that our landlords have all the information they need to ensure their portfolio remains stable and sustainable. We also produce a quarterly magazine (B2L) that is sent to more than 40,000 landlords providing case studies, independent comment and offering examples of best practice – again, aimed at supporting our buy-to-let customers.

However, we accept that a minority of our customers do face financial difficulty and we aim to treat them fairly and take account of their individual circumstances.

We employ around 2,400 staff, of which around 1,000 work directly with customers, both buy to let and residential, who are in arrears or facing future payment difficulties.