B2L repossessions will threaten market

The news that Abbey is withdrawing from the buy-to-let market is likely to add to the gloom surrounding the housing market.

I wonder how long it will be before the television networks catch up. The daytime TV schedule is still full of Homes under the Hammer-type programmes where amateur investors are persuaded that property development is a quick route to riches.

Moneyfacts’ April issue features only two buy-to-let products with a maximum LTV of 90%. Compare that to a year ago when there were 17 products at 90% LTV and many others at 89%.

It’s surprising that some lenders are only just becoming concerned about the buy-to-let sector and the impact it could have on the market as a whole. The last time there was similar uncertainty was in the early 1990s, when it was predicted that over 50,000 homes would be repossessed. In fact, 73,000 properties were repossessed in 1991.

Similar predictions are doing the rounds today but there will be a different mix of repossessions this time around. In the early 1990s the main economic problems were interest rates that hit 15.4% in May 1993 and high unemployment. Now consumer debt is the main concern. In the early 1990s prime lenders drove repossessions but this time around secondary lenders will be involved. Buy-to-let will also play a major part in the equation.

When the Council of Mortgage Lenders began collecting buy-to-let statistics in 1998 there were 28,700 outstanding loans. At the end of 2007 there were over one million of them.

Although a large number of these loans involve professional investors, a substantial number of amateurs persuaded by TV shows that profits in the buy-to-let market were guaranteed will feature too.

The big risk to the market today is growing buy-to-let repossessions. In the early 1990s when consumers lost their homes one housing unit came on the market at a time. An upturn in buy-to-let repossessions could see investors losing multiple properties. The results could be apocalyptic.

But brokers can make a difference here. With a little research they can predict which of their customers might get into trouble. The more proactive brokers are in contacting their customers, the more likely it is they will be able to assist with refinancing before it’s too late.