Buy to Let Borrowers struggle to repay loans

03/08/2012

Buy-to-let borrowers struggle to repay loans, one in ten residential property investors shown the door by existing lenders, increase in pensioners entering lettings, and the UK is shown to have the third highest housing costs in Europe.

Unsettling news has come to light regarding UK Asset Resolution (UKAR), the state-owned lender set up to take on mortgages from Northern Rock and Bradford & Bingley; it has been revealed that they have 100,000 customers with no credible plan to repay their interest-only home loans, many of whom are landlords.

Approximately 360,000 out of UKAR's 600,000 total borrowers have taken out the controversial loans, where customers only service the interest costs, without making any capital repayments. Of these, two-thirds either haven't the foggiest idea how they are going to repay the loan, or only have a very faint idea. Somehow, 5% don't even know that they have an interest-only loan.

Towards the end of the decade, most of the interest-only mortgages will mature, leaving UKAR's customers eight years to cough up the dough.

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UKAR's Chief Executive, Richard Banks, has said that around 10% of customers overall are in trouble with their home loan, which is double the industry average.

They have repaid £788m in loans to the government, bringing the total they owe to the taxpayer down to a no less eye-bulging $45.8bn.

Profit for the half year fell by 18% to £481.4m, although this does not include the £143m profit it made recently by buying mortgage securities backed by its own home loans for less than their face value.

Banks said: "We have made strong progress in the first half with further repayments to the Government.


"Much of our focus is on helping those of our customers who are in financial difficulty and it is pleasing to see a further significant reduction in arrears levels despite the continued economic uncertainty and pressure on consumers' finances."


They have also sold £465m of Northern Rock mortgages to Virgin Money and will use the proceeds to chip away at their massive loan repayment to the government.

With such alarmingly high numbers of buy-to-let borrowers unable to pay back their loans, it doesn't come as a shock to find that nearly one in ten residential property investors have been told by their existing lenders to find a mortgage elsewhere.

Specialist broker, Mortgages For Business, have released the findings of their new research, revealing that 8% of investors have been asked by their lenders to refinance elsewhere, due in large part to RBS looking to reduce its exposure to property, while Bradford & Bingley want out of the market altogether.

Mortgage difficulties don't seem to be that great a deterrent, however, as the researchers found that 60% of property investors intend to further develop their portfolios by the end of this year. Although, 75% feel that mortgage lenders should be doing more to help them.

Landlords were especially dissatisfied with rates, fees, and LTVs. What they want is more innovative lending, including more products for limited company applicants, products for holiday lets, and more lending to expatriates. A desire has also been expressed for more case-by-case underwriting in favour of computer-based lending decisions.

They also found that 54% of investors who are planning on expanding will need to refinance their existing properties. Of these, 20% said that they will struggle to secure finance due to a lack of equity, which is a testament to the scarcity of high LTV mortgages in the market - Data from Kent Reliance Building Society shows that, as of June, there were just four 85% LTV mortgages available.

Investment property specialists, Young Group, carried out their own research among 500 property investor clients. They found that 44% of property investors with property in London are considering adding to their portfolios over the next 12 months. But outside London it's a different story, with just 18% considering purchasing further property. Interestingly, this means that for the first time since Q4 2007, more investors are considering buy property overseas (29%) than purchasing property in the UK's regions.

Those for whom adding to their portfolios is not under consideration over the following 12 months, the vast majority cite state funding issues as their main barrier.

34.5% of investors were found to have intentions of holding on to their properties for at least the next 20 years, and 58.2% for the next 10 years.

Other research, this time by Simply Business, has revealed that there has been a steep rise in landlords aged 651/4, rising 11% in the last year, and up 33% since 2009. They found this by examining more than 300,000 landlord insurance quotes.

They noted that female pensioners in particular have been entering the property rental business, increasing by 12% in 2012, and by 43% since 2009.

With the housing market depressed and homes not being easy to sell, many are choosing to rent out their existing properties when downsizing or moving in with their families. The overwhelming majority (93%) of retiree landlords own just one rental property. The research shows that nearly three-quarters (74%) of landlords aged 651/4 have been letting out properties for over three years.

The number of young landlords, however, has fallen sharply, with the number of landlords aged 18 to 25 decreasing by 38% over the last three years.

Jason Stockwood, CEO of Simply Business, said, "In today's economic climate, choosing to rent out your property rather than sell immediately has been a good option for many when looking to move, and with the current squeeze on pensions this is proving a good source of income for people of retirement age.

"Buy-to-let can be a tough marketplace to enter, but there is a great deal of support available for those looking to take the plunge, and we provide specialist insurance for people of all ages to start and even grow their portfolios.


"As a result, many who started out as so-called accidental landlords have chosen to remain in the market for the longer term and to continue reaping the financial benefits."

The news stories for tenants never seem to be very positive, and, alas, it is about to continue. Findings by the European Union and highlighted by Shelter, the housing charity, show that the UK has the third highest housing costs in Europe, behind Denmark and Greece.

According to the EU, 16.5% of people in the UK are overburdened by housing costs, spending over 40% of income on rent or mortgage payments and other property-related expenditure.

Campbell Robb, chief executive of Shelter, said, "These figures are the evidence that the UK housing market is deeply dysfunctional. With so many families spending huge amounts of their income on their rent or mortgage, people will be making daily trade-offs between food bills, filling the car tank with petrol, and paying their housing costs.

"And this is not set to get better any time soon. While the situation is bleak at the moment, a succession of governments failing to provide much-needed affordable homes means that the future facing our children and our children's children is only set to get worse.


"Housing is the largest monthly cost for most people, yet the affordability of housing is not getting the same attention as the monthly costs of other essentials such as food or fuel.


"We believe all political parties must recognise that solving our housing crisis is as fundamental as health and education."

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