Figures from FSA Reveal High Default Rate for Buy-to-Let Mortgages

The Financial Services Authority (FSA) has published the data on the level of arrears on high LTV buy-to-let mortgages. Figures from 10 major lenders have been analyzed by FSA experts.

The default rate for buy-to-let mortgages with loan-to-value (LTV) ratios between 90% and 95% is 8.13% which is much higher than 2.56% default rate for prime loans. The situation is slightly better with buy-to-let mortgages with loan-to-value ration between 95% and 100%.

The FSA representative suggested that in the times of recession more highly-indebted borrowers could not maintain high debt-servicing costs. The report also shows that current financial crisis has had a negative effect on mortgage brokers.

Most brokers report that the recession has negatively affected their cash flow and the level of their capital reserves. The FSA believes that this situation might have led some intermediaries to turn to other sources of revenue in the areas where they have little experience. This changed could have increased the risks.