Buy-to-let thought to typify 'correct practices'

Lee Grandin, managing director of Landlord Mortgages said of the current market conditions: “The news this week that Halifax and Abbey have increased the interest rates on their mortgages has set the media into a frenzy. The question is why? Put into perspective the rise of up to just 0.2% is not a huge one and should not be taken as an indicator of a huge downturn in the market as many of the doom-mongers are suggesting.

“The question is actually how has the US ended up in such a mess. The current situation could have been easily avoided had sub-prime lenders simply introduced the measures that landlords have been implementing for years. Any good landlord knows to check references for new tenants. If a prospective tenant has a history of not paying on time, the obvious answer for the landlord is to not rent to that tenant.

“However, it seems the opposite is true of sub-prime lenders. If a borrower has a history of defaulting on payments, they are still lent money. If a borrower misses a payment, all the better, they are lent even more money. It seems that UK lenders need to tighten guidelines and work to avoid a replication of the problems in the US.”

“Small businesses suffer from cash flow problems but they learn to build in necessary precautions to avoid any conceivable down turn. They know that banks or the Government rarely step in to stop them going into liquidation. Maybe the Government or Bank of England should think twice before bailing out a lender.... a short sharp shock will sort out irresponsible lending in one blow. If lenders are given a 'get out of jail card' then things will never change.”