Analysts are predicting carnage in the property market following the effective collapse of Britain's biggest buy-to-let lender , predicting that many property investors coming to the end of fixed-rate mortgage deals will find it impossible to refinance.
Buy-to-let is considered higher risk than conventional mortgage finance, which has lead to an exodus of lenders from the sector. In the last 12 months, there has been a staggering 85 per cent drop in the number of buy-to-let mortgage products on offer, according to financial website Moneyfacts.co.uk
The withdrawal of buy-to-let specialists , Southern Pacific and Preferred Mortgages, coupled with troubled bank HBOS pulling the majority of its range last week, means just 481 buy-to-let products are available today.
Moneyfacts analyst Michelle Slade said investors typically require a loan-to-value ratio (LTV) of 75 per cent in order to refinance or take out a new loan, and reduced competition among lenders means the average two-year fixed rate on a buy-to-let mortgage has risen to 6.92 per cent.
The situation is bleaker still for amateur investors with less than 25 per cent equity, who will have no option but to move on to their lenders' standard variable rate (SVR) - currently a pricey 7.14 per cent at Bradford & Bingley, and 7.94 per cent at Paragon.
Such a big increase in monthly mortgage repayments could easily outstrip rents that landlords are able to charge. Alex Potter, banking analyst at Collins Stewart, forecasts this 'rate shock' will drive up arrears and repossessions, leading to a wave of failed investment properties being dumped back on to the market.
This would further depress UK house prices - already down 10 per cent in a year - with Capital Economics bearishly forecasting a drop of 20 per cent by early 2009. The decline is compounded by a 95 per cent year-on-year collapse in mortgage lending in the month of August.
But, there is better news for seasoned buy-to-let investors, who are being targeted with a wave of new 50 per cent LTV mortgage deals. Coventry Building Society's Godiva Mortgages has launched a variable rate deal at 6.6 per cent for term, and Leeds Building Society and Standard Life boast comparable high-equity products, showing buy-to-let - though expensive - is far from dead.
