FOR tens of thousands of beleaguered buy-to-let investors, the revelation last week of mortgage lender Bradford & Bingley's financial difficulties will have cast a shadow over their own attempts to make ends meet in these challenging times.
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mitted it had made an £8m pre-tax loss between January and April, compared with a £108m profit in the same three months in 2007. The lender warned of tough times to come, as it faces rising arrears in buy-to-let lending, an area in which it has specialised for some years.
B&B's warning comes as many who bought properties at the height of the buy-to-let boom in the past two years, especially those large blocks of flats that have sprung up in towns and cities across the UK, including Glasgow and Edinburgh, may be ruing the day they did so.
Experts warn the property market is set to remain in the doldrums until the end of 2009 at the very least, with prices falling by up to 20%.
Ed Stansfield, a property economist at Capital Economics, says: "It is difficult to know what the precise lending practice has been among other lenders, but there is a sense that the sharp rise in arrears among buy-to-let investors means a similar picture to B&B is likely elsewhere.
"Quantifying it is the key challenge. On the one hand, as property prices fall, the demand for rented accommodation will increase and that sustains yields for landlords, while the chance of voids (where rental properties remain empty for long periods] is reduced.
"On the other side, there will be pockets of new-build accommodation in large apartment blocks where competition for tenants will drive rents down and values will also be affected."
Stansfield points out that although it is a relatively small part of the total market, buy-to-let has tended to underpin property prices as a whole, especially from 2006-2007 onwards, when first-time buyers were left priced out.
The Council of Mortgage Lenders does not share this sense of pessimism. Sue Anderson, head of external affairs at the lenders' trade body,
says: "There has been a rise in the number of repossessions and it is clearly true that the received wisdom is that a buy-to-let lender will not be looking at its borrowers with the same level of forbearance (as with a normal borrower].
"But you can look at this both ways and argue that the problem of bad debt is not as high in the buy-to-let market as it is in the market as a whole. Plus, the average maximum loan-to-value for buy-to-let is 85%, although that doesn't mean a lender may not offer more.
"Bear in mind that buy-to-let is a counter-cyclical market. If property prices fall, the private rented sector will be subject to greater demand from potential first-time buyers in particular."
The Association of Residential Letting Agents (Arla), which represents estate agents active in this market, says that the recent fall in house prices has meant the number of private tenants seeking property reached a five-year high.
An Arla spokesman rejects fears that lenders may be tempted to foreclose on their borrowers or, conversely, that many borrowers may be facing difficulties: "Most buy-to-let investors have got quite good cushions both in terms of their loan-to-value and how they did their sums in the first place.
"A typical investor will have a portfolio with a loan-to-value of about 70%. That makes him a good bet for the lenders.
"You have to bear in mind that a typical buy-to-let investor is in his 40s and he probably intends building his portfolio for 20 years.
"There will be some, like the 'buy-to-flip' people who came into the market hoping for capital appreciation in the short term, who may get their fingers burnt, but they are at the margin. Most serious investors are prepared to sit things out."
What of buy-to-let investors themselves? Relative novices hoping to cash in on rising prices may be taking a big hit but 'professionals' see the recent drop in house prices and the problems faced by others as a huge buying opportunity.
While some former buy-to-let owners are looking to exit the market, sometimes even at a loss, others are making "cheeky" offers in the knowledge that while they may get turned down nine out of 10 times, all it takes is one desperate seller for them to make a killing.
Ajay Ahuja, a businessman whose 200-strong buy-to-let property empire includes 80 homes in Scotland's central belt, is among those now piling in: "I started seeing it in January and February but it became really clear in March this year that there has not been such a good time in years to buy a property.
"Everyone's scared and there is an absence of buyers, which leaves professional landlords able to negotiate quite harshly, offering up to 20% less than what they are asking."
Ahuja says that, contrary to some reports, it is still possible to obtain buy-to-let mortgages priced as low as 6.15% on an 85% loan-to-value.
He suggests that for experienced buy-to-let investors a few lenders are still willing to advance far higher percentages of a home's value, some even up to 100%.
"Let's put it this way: my original target at the start of the year was to add 200 properties to my portfolio. I have adjusted this to between 500 and 1,000 properties, as long as first-time buyers and novice landlords stay out of the market."
The lesson for buy-to-let investors, it seems, is that if they were sensible enough to stay away from overpriced apartment blocks thrown up in the past two or three years, and still have some equity in their properties, they will be able to ride out the storm.
For tens of thousands of others who thought buy-to-let was a way to make an instant killing, prospects are likely to be much bleaker.
The full article contains 1059 words and appears in Scotland On Sunday newspaper.
