Although house prices show to be moderating slightly, they are still declining, as are mortgage products, particularly for the U.K. buy-to-let (BTL) sector.
Barclays Capital analysts said the scale of the retrenchment in mortgage lending is clearly demonstrated by the U.K. BTL sector.
Data from moneysupermarket.com highlight that BTL mortgage products have declined from 4,384 products to just 213 in the last two years. There are no mortgages available for BTL borrowers at 85% LTV. A borrower would now need a minimum of a 75% LTV to secure a mortgage.
"While the Bank of England base rate has been falling, so have mortgage rates, but less so in the BTL mortgage sector," analysts said. "Where prime rates have reduced by 2.16% on average, BTL mortgage rates have reduced by 1.51% on average."
This lack of mortgage product availability means that the prepayment rates for the BTL sector are likely to decline significantly. This impact, said analysts, has already been evident in Bradford & Bingley's Aire Valley Master Trust where the annualized three-month CPR rate has dropped to 4.7% as at the March investor report from 7.5% in October 2008. It averaged around the 15% to 20% level 18 months ago.
"In some respects this is a positive for this particular trust, though that will depend on an investors' individual holding in the capital structure, as the trust has breached its substitution trigger and hence is unable to add new loans to the trust, which makes it inevitable that the non asset trigger will be hit in the future, although the lower the CPR rates, the longer till this trigger is breached," analysts said.