BUY- TO – LET HIT ONCE AGAIN BY CREDIT CRUNCH !!

As another Buy to Let lender faces trouble as the detrimental effects of the credit crunch are once again seen in the property market. Earlier this week Paragon revealed that it was forced to draw up an emergency rights issue. Just like Northern Rock, Paragon relies on raising money in the credit markets and has been left exposed by the credit crunch. Unable to get a government bail out the rights issue has wiped nearly 39% of Paragon’s shares. Even Bradford & Bingley the buy to let sectors biggest lender has had to take remedial steps and has sold off more that £4bn worth of loan books.
Whilst these moves ensure that all existing debts are financed as the credit crunch continues it is difficult to see these lenders writing any significant volume of new business.

The direct affect on private landlords and buy to let investors is the change in mortgage products available to them. With stricter criteria and many lenders reducing the maximum loan value on new build properties, it has claimed that buy to let investing faces the danger of becoming a playing field for the wealthy.

There are however many things a buy to let investor can do to protect themselves. One of the most important things to look out for is arrangement fees. With many lenders offering what seems to be attractive interest rates buy to let investors must be aware of the higher arrangement fees of up to 3% of the loan. This is particularly important on one year products where an annual remortgage could result in a deficit to the investor who struggles to create enough rental yield profits to cover large annual costs.

Rental yields need careful consideration as the housing market slows. In the last two years significant house price inflation has allowed investors to become more relaxed about rental yield seeing their investment returned in capital. Today investors are turning back to rental yields to support their investments. With indicators showing rental increases with increased demand for rental properties alongside speculation of interest rate cuts buy to let investors should be comforted by better rental yields as their capital returns slow.

Rental yields can be further improved through quality buy to let furnishings. Lodge Furniture has reported an increase in sales of their durable packages specifically for rental properties. It seems increasingly clear that investors need to have long term investment strategies for capital growth supported by their rental yields.