Wednesday, 6 May 2009

SKY NEWS - the end of buy to let

Interesting article on the SKY News website today.

Buy to let mortgage deals have almost disappeared. Those that remain are requiring a deposit or equity of 25%, a higher multiple of rent than previous and a rate that has not dropped much since June 2008.

I have said before and I will say again, the housing market problems have still not really kicked in. The interest rate cut has postponed a large slice of the problem. But the probem is only delayed not cancelled.

As the old buy to let deals finish, these borrowers will be unable to get a new deal elsewhere or even with their existing lender. Not a problem short term as they will move onto a base +% tracker around 2.5%.

It has long been my opinion that interest rates have been cut way too low. A rate of around 3% as it is in Australia would be more than sufficient to stimulate the economy. But the muppets at the BOE led by Gordon Brown have cut to a level so low, that it will generate huge inflationary pressures in the months to come.

As rates increase back up to a more sustainable level of 4%, the buy to let mortgages will move towards a rate of 6/7% and that is when the second squeeze will come.

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