Saturday, Jun 30, 2007
Banks are tightening BTL requirements... you wish!
CityWire: Standard Life tweaks buy-to-let line up
Standard Life has announced that it has tweaked its Freestyle buy-to-let portfolio with rental yield requirements down from 120 to 110%. The maximum available to borrow without verification of income has risen from 75 to 85% and landlords buying more than one property will get half price arrangement fees.
Posted by confused76 @ 10:38 AM (50 views) Add Comment
2 Comments
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1. Drewster said...
With the rise in base rates, tweaking the rental yield barely keeps the market afloat. For example consider a property mortgaged at £100,000 and rented out at £6,050 per year. In the past with base rates of 5% the yield was 121%. Now with interest rates at 5.5% the yield is just 110%. In other words Standard Life is having to run faster just to stay in the same spot.
New landlords must be finding it tough going. There aren't many properties on the market with a rental yield of 100%, let alone 110% or 120%. In my postcode area the cheapest 2-bed house costs £199k to buy or £750pcm to rent. That's a yield of 80% before taking into account repairs, agent fees, void periods, etc.; certainly not enough to pay the mortgage interest let alone repay the capital.
In the past, relaxation of lending criteria was a sign of credit expansion. The math above shows that this is move is neither credit expansion nor contraction - therefore we are at the crest of the credit wave. The next step is credit contraction, small at first then spreading more rapidly, eventually turning into a full-blown credit crunch. It may yet be a year or two away. This doesn't bode well for house prices or for the wider economy.
2. sirgoogle said...
This is great that SL are doing this and having to tighten the screws on the BTL. I have some shares and investments in SL and I am pleased to see that they are reading the runes (at last) and starting to close out this part of the portfolio. I was (and still am) worried that when the HPC occurs it could bring down some of the big institutions together with the investors with savings in them.