RLA : RPI : Landlords 'may not understand' risks

News from the Residential Property Investor, the bi-monthly magazine for RLA members

other artilces from the February / March 04 issue

Landlords 'may not understand' risks - February / March 2004

Investor understanding of the full range of risks associated with buy to let investment may be limited, the watchdog for the financial services industry has claimed.

The Financial Service Authority's Financial Risk Outlook 2004 said it is 'increasingly imperative for individuals to take responsibility for planning their own financial affairs'. It is worried that low inflation and other factors have encouraged people to take on too much debt. With most commentators expecting interest rates to rise, this means they should be 'thinking hard about what levels of debt they can afford', said FSA chairman Callum McCarthy.

Mortgage lending had been strong, 'the growth of buy to let mortgage lending has been stronger still', said the FSA. 'A record 75,100 buy to let mortgage loans worth £7.7bn were advanced in the first half of 2003. There are now 334,800 buy to let loans outstanding, worth some £31.2bn'.

Most buy to let mortgages are interest only, said the FSA. This 'increases the probability that investors will be faced with negative equity if they are forced to sell property during a market downturn'.

Investors should consider a range of factors when making buy to let investments, including conditions in the rental market and management and maintenance costs, it warned.

The FSA's warning comes in the wake of reports that HBOS, Britain's biggest mortgage lender, has imposed a limit of 10 on the number of buy to let mortgages it is prepared to allow individual investors.

other artilces from the February / Marc 2004 issue

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