Collapse of sub-prime buy-to-let lending

Moneyfacts, the price comparison website, has reported that the market for sub-prime mortgages for buy-to-let investors has virtually collapsed.

The ongoing credit crisis has resulted in almost 90% of this type of mortgage being withdrawn from the market.

The situation has been accelerating, with over half of buy-to-let mortgages for investors with troubled credit histories disappearing in the past month.

In July, there were 1,383 sub-prime buy-to-let deals available but the figure currently stands at 149.

Four lenders remain in the market: Preferred Mortgages, edeus, Manchester Building Society and Pink, a lender funded by Nationwide’s sub-prime division, The Mortgage Works.

The situation has sparked fears that landlords may be forced to sell-up, as anyone needing to remortgage may see their monthly outgoings increase by hundreds of pounds, at a time when rental yields are declining.

The could be particularly difficult for new landlords, who may have large mortgages on their properties; Melanie Bien of mortgage broker, Savills Private Finance, believes that: “Novice landlords might sell up when the going gets tough and if the cost of mortgages rises”.

At the same time, the decline in the number of sub-prime residential mortgages is continuing.

Since the onset of the US sub-prime crisis, the number of residential mortgage products available to people with poor credit histories has reduced by 63%.

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