Buy-to-let landlords will have to raid their savings and inject extra capital into their homes, under an obscure clause in their mortgage contracts, if house prices continue to fall. Daily Telegraph
Both Bradford & Bingley and HBOS-owned Birmingham Midshires, the two largest buy-to-let mortgage providers, each with 20% of the market, require customers to top up their initial deposits if falling house prices mean the size of their mortgage rises above 85% of the value of the home.
In a decade of rising house prices, the clause has been largely irrelevant but analysts are concerned that it may now convince landlords, who are already facing higher mortgage costs, to sell large chunks of their portfolios. Housing experts have long worried that a flood of buyto-let properties on the market could have a devastating effect on house prices. The International Monetary Fund is already predicting a 10% fall this year.
Under the terms of the contract, if a £100,000 home with an £85,000 mortgage falls in value by 10% the landlord has to find another £8,500 to maintain the lender’s maximum 85% loan-to-value rate – even though there is still £5,000 of equity in the property.