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Buy-to-let mortgages become harder to find - 22 September 2009

Property investors looking for buy-to-let finance for their portfolios of property are finding it harder to source mortgages, a recent survey has shown. This is despite the fact that the biggest banks in the UK now have the government as large shareholders following bailouts last year, and are beholden to increase the availability of mortgages to buyers under the terms of their emergency funding.

The figures, from specialist mortgage lender Paragon Mortgages, state that 89 per cent of people who tried to take out a buy-to-let mortgage during the three months to the end of August found the approval process more difficult that in the three months previous. Just three per cent of landlords seeking new funding said it was easier to get a mortgage while the remaining eight per cent didn’t see any difference.

The buy-to-let mortgage market has been hit hard by the credit crunch as it relied heavily upon the wholesale money markets to raise money, which have effectively dried up in recent months. The range of buy-to-let mortgages available to landlords has also dropped by more than 90 per cent since August 2007.

While there are signs that the conventional mortgage market may be picking up a little, the buy-to-let mortgage business has continued to suffer. The lack of buy-to-let mortgage availability can be seen in two ways – either that the banks are right to restrict the lending they allow to only those customers who are able to provide substantial deposits and therefore protect their balance sheets from the possibility of bad loans; or that the banks have a duty to stand by their pledge to return to 2007 levels of lending as soon as possible. Those who feel that much of the credit crunch was caused by banks lending too much, too easily are likely to support the restrictions on buy-to-let mortgages, while those who feel the banks need to support the housing market as far as possible are likely to feel they should free up funds.

The Paragon figures are released at the same time as one of the largest mortgage lenders in the country, Lloyds Banking Group, announced it was imposing new standards on the buy–to-let properties it will lend against, thus making getting a mortgage even harder.

The banks, 43 per cent owned by the taxpayer, is to prevent buy-to-let landlords form having more than nine properties under finance from any of its banking brands which include Halifax, Lloyds TSB, Bank of Scotland, Cheltenham & Gloucester, Birmingham Midshires, the Mortgage Business, Intelligent Finance, and Scottish Widows Bank.

In addition, customers with buy-to-let portfolios with the Lloyds group of brands will not be allowed to have for more than a combined total of £3million.

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