Financial Risk Outlook report reveals troubles in buy to let market

Financial Risk Outlook report reveals troubles in buy to let market


A Financial Risk Outlook report published by the FSA has revealed that the post-crunch mortgage market is still rife with credit problems and potential risk.

The FSA disclosed 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.

In analysis, including 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%.

This is compared to the 2.56% default rate for prime loans and the 8.56% rate recorded for credit-impaired loans.

For buy-to-let mortgages with an LTV between 95% and 100%, the default rate falls to 6.3%, against 2.5% for prime deals and 8.97% for credit-impaired mortgages.


The report added: “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.”


Mortgage services have also been negatively impacted by the financial crisis, with brokers in particular struggling with slumps in sales.


According to the research cited in the report, over 75% of brokers blame the current economic climate for a reduction in cash flow. A further 60% reports a negative impact on their levels of capital reserves.


The report also warned that, due to the financial crisis, “some intermediaries could have increased incentives either to leave the industry or to try raising revenue by increasing sales of other products.”

It added: “The movement of intermediaries into product areas where they have little or no experience could potentially give rise to conduct risks.”

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