Since its inception in its current form in 1996, buy to let has enjoyed a largely positive time of things, with more people turning to property as a form of investment than ever before and not just professional landlords either. Parents buying a rental property for their children to live in at university and homeowners letting their properties rather than selling them are just two examples of people turning their hand to buy to let.

However, the sector is not immune from the credit crunch currently gripping the housing market – and wider economy in general – with price comparison site Moneysupermarket reporting a 40% drop in the number of buy-to-let mortgages available in April 2008 alone. It claims the number of products has fallen from 4,025 to under 700 in one year.

Given the affordability issues facing first-time buyers, you would think landlords would be reaping the rewards of more people being forced to rent, but the reduced choice of products and tightening of criteria leads to something of a catch-22 situation. Louise Cuming, head of mortgages at Moneysupermarket, says: “As stringent lending pushes people into the buy-to-let market, the decrease in the number of buy-to-let mortgages becomes increasingly alarming. I fear we will soon see many people unable to buy or rent – the question is, where do they go from there?”

Mind the gap

With day-to-day affordability becoming more of an issue as the credit crunch continues to bite, landlords and tenants are nervously eyeing each other up, hoping the other can keep their part of the bargain. Don’t panic if you are a tenant though, as you won’t necessarily be turfed out if your landlord goes into arrears. John Heron, director of mortgages at Paragon Mortgages, says: “It all depends on the terms of your lease and the manner in which the lender manages its portfolios, but they typically let tenants see out their contracts. After all, their rental income is an important mitigant if the landlord falls into arrears.”

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From the other side of the fence, landlords should ensure they are covered if tenants fail to pay rent. Potential landlords are often warned about ‘void periods’ when the property is empty, but in the current climate they should probably be more worried about tenants falling behind with payments. You should ensure you either have money put away in reserve or some form of insurance. AXA advises private landlords to check the details of their insurance policy to make sure they are not leaving themselves exposed. Michael Keating, spokesperson for AXA, says: “Having the right cover in place might just ultimately save an unwanted repossession for some. And in the current market it would, if nothing else, provide some much needed peace of mind.”

Does size matter?

It’s not just landlords with one or two properties who have been affected by the current climate either – those with large portfolios face the same pressures. Heron says: “It is more to do with having the right property than how many you have. If your property is desirable people will queue round the block to let it, especially with the market as it is. It is important to separate buy-to-let landlords from speculators though, as the former recognise they are in it for the long run.”

Buy to let has inevitably suffered just as the mainstream mortgage market has, but Heron says the number of arrears are still traditionally low and not as high as those in other sectors. Buy to let may not be bubbling over quite like it has in previous years, but it has by no means gone cold.

Use our buy-to-let mortgage calculator to work out how much you can borrow.