Was the buy to let concept mis-sold? This is now a question on the lips of many leading industry commentators.
The Financial Services Authority have revealed that the level of arrears on high LTV buy-to-let deals is more than three times that of arrears on high LTV prime mortgages.
A breakdown of arrears rates based on data from the 10 biggest mortgage lenders grouped according to the type of mortgage and the LTV as at origination in 2008.
The FSA found that the default rate for buy-to-let mortgages with LTVs between 90% and 95% is 8.13%, compared to the 2.56% default rate for prime loans and the 8.56% rate recorded for credit-impaired loans.
The FSA says: “During the recession, the number of highly-indebted borrowers unable to maintain high debt-servicing costs has increased, due to their over-reliance on credit to service their debts.
“Specialist lenders that extended mortgage credit to those who had previously not had access to the mortgage market, and those who purchased mortgage books from these lenders, have to date been most affected by rising arrears and repossessions.”
The report also highlights the effect that the financial crisis has had on mortgage brokers, noting that brokers have been particularly hard hit by falling sales.
It cites research which says that over three quarters of brokers say current economic conditions are having a negative impact on their cash flow.
Over 60% also report that they are experiencing a negative impact on the level of capital reserves they hold.
Bobby Kennedy of Gravitas Law said, “This is systemic of people living beyond their means. In many circumstances the developers, finance houses and advisors are to blame.”
If you think you may have been mis sold your buy to let mortgage then contact us on 0800 612 7014.