Buy-to-let mortgage market in trouble

It is fair to say that the UK mortgages market is in turmoil at the moment, thanks to the double whammy of the global credit crisis and the domestic drama in the Northern Rock bank that almost caused its collapse. The latest sector to suffer is the buy-to-let mortgages market which appears to be entering a period of meltdown, which in turn could threaten the entire UK property market.

Paragon, one of the country’s leading buy-to-let lenders, recently revealed that is unable to secure the wholesale funds that it needs to continue trading. As a result, it has been forced to half the number of buy-to-let mortgages it intends to offer in 2008 and other lenders are expected to follow suit. Indeed, the UK’s biggest buy-to-let mortgage lender Bradford & Bingley is taking drastic action in order to raise the funds it has earmarked for mortgage lending. In what could be interpreted as a panic measure the bank has decided to off-load some of its commercial property and social housing loans worth over £4billion in an attempt to increase its cash balances.

This significant reduction of the number of buy-to-let purchasers is expected to impact on the housing market, prompting house prices to fall in many regions as overall demand for all property drops. The main difference between high street financial institutions and companies such as Paragon is that the banks and building societies fund a proportion of their lending with savings deposited by customers. Solihull-based Paragon has to rely on securing funding for their borrowing on international markets, and that is in short supply, especially for institutions whose credit rating depends upon the quality of their loan book.

But, it’s not just the buy-to-let market that is feeling the pinch; residential property owners coming to the end of their fixed-rate or discounted mortgage deals are discovering that financial institutions have strictly tightened their lending criteria, and also that fixed rate deals are now much more expensive. They have found that unlike when they took out their previous cheap mortgage, there is now a limited choice of products. Unable to compare mortgages in the numbers that they did a couple of years ago, many will have to settle for a more expensive alternative.

So, although there appears to be mortgages doom and gloom all around, Paragon’s chief executive Nigel Terrington is hoping that the markets soon recover and acknowledges that timings are critical. He said: "While we expect credit markets to bounce back from their current distressed position at some point during 2008, it’s the timing and extent of the recovery that will impact on our outlook."

Article Source: http://www.theukarticledirectory.co.uk