Create the Perfect Home Buying Environment 2009
When house prices are climbing, buy-to-let mortgages are, for many people, a great way to make money out of property – even if the rental income does little more than cover the costs of mortgage and maintenance, the appreciation of the property’s value can deliver profits many times larger than anything they could expect through just about any other investment.
When house prices peaked at ?186,000 in October 2007 (according to the Nationwide House Price Index), the ‘average’ property had more than trebled in value in a single decade – and buy-to-letters who’d bought and sold at the right time made massive profits.
When house prices are dropping, however, buy-to-let mortgages become a less attractive proposition. By October 2008, the average price had dropped almost ?30,000 from the peak – leaving many buy-to-letters in an extremely awkward position.
For those with the resources to ‘ride out’ the problems in the housing market, this wasn’t necessarily a huge problem. House prices go up, then down, then up again – so they were well aware that the ‘secret’ to turning a profit on their properties was simply to wait until prices rose again.
For others, though, dropping values are always a serious issue, especially when they’re accompanied by a recession that may be pressuring their finances in other ways. Whether they’re counting on their financial investments or on their ‘9-to-5’ job, many so-called ‘amateur landlords’ can find their income shrinking along with the economy, causing them to wonder whether they can really afford a buy-to-let mortgage on top of their other expenses.
Add to this the fact that rental prices tend to come down when house prices do, and it’s easy to see why many landlords may be tempted to put an end to their buy-to-let mortgage payments by selling up – if only the thought of selling when prices are down wasn’t so unappealing…
So maybe it’s no surprise to hear that buy-to-let mortgages were more likely (than other mortgages) to be in arrears towards the end of 2008. According to the Council of Mortgage Lenders, 1.44% of mortgages were at least three months in arrears at the end of September 2008 (up from 1.33% at the end of June) – but 1.58% of buy-to-let mortgages were in arrears (up from just 1.10% at the end of June).
In just three months, the percentage of buy-to-let mortgages in trouble had grown by almost 50%, making buy-to-let mortgages more likely – not less likely – to be in arrears than the ‘average’ mortgage.
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Posted by Carlos Sagastume on January 21, 2009. Filed under Home Buying.
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