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Warning Over 100% Buy-to-let

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http://www.thisismoney.co.uk/mortgages/buy..._id=56&ct=5

Warning over 100% buy-to-let

Simon Lambert, This is Money

22 May 2007

Novice landlords have been warned to avoid easy buy-to-let mortgages that do not require that rental income exceeds monthly payments.

Specialist buy-to-let broker Landlord Mortgages has said that only experienced landlords with substantial portfolios should gamble on a property where rent only just covers the mortgage.

Growing numbers of 100% buy-to-let loans that do not require the typical 125% of monthly payments rent cover could be storing up problems for the future and risking a sharp rise in repossessions, according to the broker.

Landlords are finding it increasingly difficult to make buy-to-let deals add up, with rising interest rates and high property prices outstripping rents. This has led a number of lenders to offer 100% coverage buy-to-let mortgages to those with good credit ratings or whose income can cover any rental shortfalls.

Lee Grandin, managing director of Landlord Mortgages, said: 'Lenders are potentially setting financial traps for novice landlords with 100% mortgages, forcing them to hand over their entire rental income to the lender each month, leaving them open to arrears if there are problems with rent collection.

'Landlords should always keep a 20% reserve up their sleeve, in case things go wrong.'

With many buy-to-let owners seeing property investments as their pension, landlords are often willing to subsidise rent shortfalls in the hope of future capital growth from rising prices.

However, landlords purchasing properties are struggling to find flats or houses at prices where rent more than covers the mortgage. Meanwhile, those remortgaging after their two or three-year fixed rate deals have ended are finding more expensive mortgage deals are squeezing finances.

Mr Grandin said that a glut of repossessed properties from failed buy-to-let deals could spell serious problems for the property market.

'100% mortgages should only be lent to landlords with the necessary experience; a portfolio of 25-plus properties, or a portfolio worth over £5m, which should have been amassed over three years or more,' he said. 'To give them to people with minimal experience is short-sighted on behalf of the lender

Maybe VI, Tories & Lib Dems can bring this to the attention of Lords as well to save BTL market & HPI. Muppets.

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Looks like there will be several negative pension funds in the future.

I believe BBC are launching a new program "Property Snake"

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Lee Grandin, managing director of Landlord Mortgages, said: 'Lenders are potentially setting financial traps for novice landlords with 100% mortgages, forcing them to hand over their entire rental income to the lender each month, leaving them open to arrears if there are problems with rent collection.

What's in the trap today ?

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