Moodys kicking up a storm on Buy to Let arrears - 12.05.2009

Author: David Whittaker Posted on: 13 May 2009

Tens of thousands of landlords are struggling to meet their mortgage repayments as the economic downturn devastates the buy-to-let market, according to a new report.

Moody’s, the ratings agency, released figures yesterday showing that 3.55 per cent of landlords were at least three months behind with mortgage payments in the first quarter of the year — compared with 0.95 per cent in the same period a year ago. Repossessions of buy-to-let loans had also risen marginally, to 0.18 per cent in the first three months of this year from 0.13 per cent in the first three months of last year.

There are about a million buy-to-let landlords in the UK, according to the Council of Mortgage Lenders.

The report focused on buy-to-let loans that had been packaged into residential mortgage-backed securities — bonds that lenders previously had traded in the money markets to raise new funds.

So that's the view published in The Times.................

The full report actually stated that if BBG arrears were ignored, then Buy to Let would be performing better than the prime mortgage average elsewhere....

The buy-to-let index for arrears over 90 days increased to 1.71% in Q1 from 0.47% a year earlier, while arrears in the prime sector have hit 1.8% during the last three months.

Lenders are reporting a levelling out of numbers of cases going into arrears and with active management and borrower support a pleasing number of cases are coming back on track. The added benefit of loans linked to LIBOR rate or BBR is that monthly mortgage costs are coming down so even if rents in some areas are "soft" the ability to cover mortgage payments is actually bailing some landlords out.

If you believe that BBR is set to remain low and RBS are predicting that it will remain at 0.5% until the end of 2010, then landlords should see ever improving cashflow throughout the next 18 months unless they are on a fixed rate.

I know that one lender doesn't constitute a market but to see the evidence of performing loans in a specialist Buy to Let lender, take a look at Paragon's data at www.paragon-group.co.uk and look at each securitisation (under Investor Relations)as evidence of how their mortgage book of some £10Bn Buy to Let is performing !!!

 

Author: David Whittaker