This article by Jim Pickard suggests that all is not well in the BTL market place. BTL lending doubled in 2006 compared to 2005 at a time when property prices were hardly moving, certainly in sectors dominated by BTL activity. Repossessions are now rising too.
My own view is that this is bound to continue. A lot BTL investment is driven by the following cocktail:
(i) large cash payments made by developers to BTL investors 24 hours after completion. These have been developed to get around the problems of the previous gifted deposits where mortgagees agreed to lend on a 'market value' that was higher than the actual sale price of the property,
(ii) specially-discounted deals provided by lenders for the short term. These provide very low-cost finance at the expense of high arrangement fees and expensive reversion to expensive 'SVR' mortgages,
(iii) tenants with bad credit risk being persuaded to pay above market rents for poor quality properties,
Good quality advisors can put together deals for property investors which avoid these problems, but the typical investor probably doesn't have the ability to discriminate between the good, the bad and the ugly. Because no investment product is being offered, the whole sector has nothing to do with the FSA.
My own view is that this is bound to continue. A lot BTL investment is driven by the following cocktail:
(i) large cash payments made by developers to BTL investors 24 hours after completion. These have been developed to get around the problems of the previous gifted deposits where mortgagees agreed to lend on a 'market value' that was higher than the actual sale price of the property,
(ii) specially-discounted deals provided by lenders for the short term. These provide very low-cost finance at the expense of high arrangement fees and expensive reversion to expensive 'SVR' mortgages,
(iii) tenants with bad credit risk being persuaded to pay above market rents for poor quality properties,
Good quality advisors can put together deals for property investors which avoid these problems, but the typical investor probably doesn't have the ability to discriminate between the good, the bad and the ugly. Because no investment product is being offered, the whole sector has nothing to do with the FSA.
