Shudders run through buy-to-let

Property experts are voicing concerns that the tightening of criteria by mortgage lenders will cause a loss of confidence in the buy-to-let property sector.

Buy-to-let accounts for approximately 12% of UK mortgage lending and many investors in the sector borrow the majority of the price of the property.

In the worst case scenario lending criteria could be tightened in the coming months, interest rates could rise and property price inflation could remain flat.

Over the past ten years, as property values almost tripled, buy-to-let investors have prospered, as have their lenders.

According to the Council of Mortgage Lenders, the number of buy-to-let mortgages has risen ten-fold since 1999 and the terms under which mortgages are offered have been relaxed significantly.

During the past eight years, the maximum percentage of the purchase price an investor could borrow has risen from 75% to 85%.

A high proportion of these loans have been made to amateur investors who are acting on the basis that house prices will continue to rise.

Many buy-to-let investors have bought property as an alternative to a pension plan, perhaps unaware that a highly mortgaged undiversified asset is not the best means of providing for old age.

Earlier this week, the Royal Institution of Chartered Surveyors reported a 10% chance of a fall in UK house prices.

The Institution is also predicting no capital appreciation over the next 12 to 15 months.

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