ROOF Blog

Thousands of tenants, students and buy-to-let investors will be hit by new laws forcing landlords to apply for planning permission if they want to rent a property to three or more people. Landlord associations have criticised the Government’s proposals, which will bring down from six to three the number of unrelated people who can rent a property together before planning permission is needed from local authorities. The legislation will affect only properties that register for a ‘change of use’ (for example, converting a family home into flats), and will not affect pre-existing houses of multiple occupation (HMOs) that are rented out to three or more tenants. There are more than 400,000 registered HMOs, and these will fall within the new legislation only if their landlords change the tenancy arrangements.

Thousands of first-time buyers will be priced out of the housing market if the Treasury presses ahead with plans to offer new tax breaks to buy-to-let investors, campaigners warn today. The Treasury published a consultation paper in February which included plans to boost the supply of private rented housing. One key proposal was for professional investors to pay stamp duty separately on each home, even when they buy a large portfolio of properties, reducing their total bill. PricedOut, which campaigns on behalf of first-time buyers who are not able to enter the property market, says the proposal is grossly unfair to first-time buyers and would make their struggle to buy a house even more difficult. William Griffith, spokesman for PricedOut, said: ‘The large tax breaks that buy to let currently enjoys mean that they can always outbid first-time buyers. It is astonishing that the government is seeking to further entrench this disparity in the housing market.’

Buy-to-let investors are back in favour with mortgage lenders for the first time in two years, raising renewed concerns that first-time buyers could once more be squeezed out of the market for one and two-bedroom properties by landlords. Brokers said that a number of lenders have started to focus on attracting landlords with more favourable interest rates, after a long period of freezing them out. Despite the credit-fuelled boom and subsequent collapse of the buy-to-let market, which left many city centre flats empty and landlords unable to complete purchases, the lenders that are now re-entering the market perceive their customers as less risky than first-time buyers.

The (RLA) is warning buy-to-let investors that lenders may try to change their borrowing rates as property values fall. The RLA says some mortgage agreements allow lenders to alter their rates if the loan to value (LTV) changes significantly. Alan Ward of the RLA said lenders may look for large repayments of capital as well as charging more expensive interest rates.

Housing and mortgage groups, including chairman of the Intermediary Mortgage Lenders Association John Heron and chief executive of the National Housing Federation David Orr, spoke before a Communities and Local Government select committee on the effect of the credit crisis on the mortgage market, and said the government had missed an opportunity to boost house builders and mortgage lenders. They argued that measures introduced in the Budget were insufficient to stop the downward slide affecting the markets. Mr Heron called for more support for buy-to-let lenders, while Mr Orr called for ministers to try to keep rents high, even if deflation occurs elsewhere.

Just a couple of weeks after credit agency Moody’s downgraded nine UK building societies, Fitch has done the same to five. Fitch cut the default ratings of Chelsea, Newcastle, Principality, West Bromwich and Yorkshire building societies because of ‘signs of strain’ on their mortgages as unemployment rises, and has placed Skipton on ‘negative watch’. A spokesperson from Fitch said its concerns were concentrated on higher-risk lending including buy-to-let and self-certification.

The chief executive of Paragon has said the government must extend financial support to specialist buy-to-let lenders or the sector will be ‘crippled’. Nigel Terrington said that the rescue package, such as the credit guarantee scheme, is only available to deposit taking institutions. According to research the number of available loan products has been reduced by 95 per cent in the past two years despite demand for private rented property remaining strong. Paragon has lent £10.7 million in the six months to March, compared with £856 million for the same period last year.

In the buy-to-let world, new lending fell for the sixth consecutive quarter, accounting for 6 per cent of all gross mortgage lending in the first quarter of 2009, down from 12 per cent in year on year figures. There were 1,700 buy-to-let repossessions in the first quarter of the year (0.15 per cent of all buy-to-let mortgages), up from 1,300 during the previous three months (or 0.11 per cent of the market). A receiver of rent was appointed in 2,400 properties – enabling tenants to stay in their home by paying rent to their lender rather than the landlord.

The level or arrears and repossession should be lower than the early 1990s, the head of the Financial Services Authority (FSA) said yesterday, as the short-term financial position of many borrowers had been improved by low interest rates. Lord Turner added he is still considering regulating the size of mortgages being made available – limiting their amounts to the value of the property or the borrower’s income. He also warned that early indications suggested the buy-to-let market may produce ‘significantly higher arrears and defaults than owner occupiers’.

Moody’s the ratings agency backed Lord Turner’s comments, reporting that tens of thousands of buy-to-let landlords are struggling to meet their mortgage repayments. In the first quarter of the year 3.55 per cent of landlords were at least three months behind with their payments, compared with 0.95 per cent for the same period a year ago. Repossessions have also increased in the buy-to-let market, up from 0.13 to 0.18 per cent in the first quarter.