Credit

What Effect Will Tightening the Reins on Credit Have for the Buy to Let Investor

As anyone in the investment sector can probably tell you, the turmoil of the credit crunch continues to make its presence known. While the boom in housing prices is often credited to the easy credit practices of ten years ago, the tightening of credit today might just have the reverse effect upon the housing market. Rather than seeing another rise in housing prices, we are more likely than not going to see a decrease in housing prices. What does this mean for the buy to let market?

On the surface, this can appear to be a beneficial aspect for buy to let investors who are looking to increase their stable of buy to let properties. After all, lower housing prices suggest the ability to either purchase a greater number of properties or to purchase them at a much lower cost to profit ratio than in the recent past.

However, this scenario of lower purchase prices attached to homes also has another face to it. In fact, with homes becoming more affordable, it is highly possible and even likely that some individuals who are currently renting will move on to the purchase of their own home. Why not? If the higher purchase prices of the past drove these individuals to consider renting in the first place, it only makes sense that a significant drop in housing prices will send them to the bargaining table for a home of their own now. Where does that leave the landlords?

What Does the Tightening of Credit Mean for Landlords with Larger Portfolios?

In the not-so-distant past, when property prices were rising steadily and buy to let investment was a booming enterprise, many lenders lowered their standards. These same lenders courted buy to let customers and catered to their investment needs by lowering their lending criteria. In fact, some of these lenders even took into consideration the personal income of lenders.

However, such practices did not bode well for the lenders and easy buy to let mortgage deals are a thing of the past. Now, with the reins of credit being pulled taut, mortgage lenders need to compete for business that isn’t replete with inherent risk. What does this mean for the buy to let investor?

Actually, for an established buy to let investor or the investor who has an excellent credit history, this happens to be a good thing. Financial lenders are faced with courting reputable investors, even those with large investment portfolios filled with numerous buy to let properties. In fact, if a lender wants to gain access to a rise in new buy to let mortgage accounts, out of necessity, he is going to up the ante and cater to the need and desire of landlords to procure the best deal possible.

For landlords, this scenario equates to competitive rates even if they have a large portfolio. In fact, larger portfolios typically equate to the ability to put up a greater deposit than someone with a much smaller portfolio. Essentially, landlords will most likely have access to better rates for their buy to let mortgage needs.