Buy to let mortgages dwindle as rental market booms

With the property market floundering, more people are looking to rent their home rather than sell it, however with the recent withdrawal of 40 percent of buy to let mortgage products, problems in the buy to let market are inevitable.

You know that you are in a falling property market when that terrible term “Gazundering” rears it’s head. This is when buyers suddenly reduce their offer as they move towards exchange of contracts, to reflect the fact that the home they are buying has fallen in value during the buying process.

Many house sellers are not even finding a buyer, or entering into complete chains at the moment, so an increasing number of home owners are deciding to rent their properties instead.

This can be a good idea, as we discussed in this article. Basically instead of selling them moving, you rent out your property and then become a tenant in your new home. It can work out well, provided you don’t mind living in someone else’s property.

However a problem in the rental market is looming.

If you are nearing the end of fixed rate mortgage term and are forced to rent your home, rather than sell it, then the withdrawal of so many buy to let mortgages may well cause you a problem. This is because lenders may demand that you take out a buy to let mortgage rather than a standard residential mortgage, if you are letting your home.

So you need to move, but you cannot sell your house. You also cannot get a suitable buy to let mortgage that allows you to rent out your property.

This is a difficult position indeed, as explained by Louise Cuming, head of mortgages at moneysupermarket.com. “As stringent lending pushes people into the buy to let market, the decrease in the number of buy to let mortgages becomes increasingly alarming. I fear we will soon see many people unable to buy or rent – the question is, where do they go from there?”

There may be a solution, depending on your lender. If you decide to let your property then your lender might allow you to remain on their standard mortgage product, rather than switch to a buy to let mortgage.

The Nationwide, for example, may well allow you to let your home for up to three years before demanding that you switch to a buy to let mortgage. This very much depends on your circumstances and the prevailing state if the mortgage market, which is far from healthy at the moment.