Survival of the fittest?

The damaging effects of the credit crunch on the buy-to-let market were finally brought clearly into focus as the landlord sector's reputed third-largest lender, Paragon, revealed it had been forced to draw up provisional plans for an emergency rights issue.

Its story is a very similar one to the tale of Northern Rock. Like the Newcastle-based bank, Paragon's business model relies on being able to raise money in the credit markets. Hence, as it has become harder to get its hands on capital through the traditional routes in recent months, it has been cornered into considering other options. Unlike Northern Rock, however, Paragon does not have a savings book – and will not be granted the luxury of a Government bail-out – leaving it more exposed as the credit crunch has dragged on.

Yesterday's news of a potential right's issue confirmed investors' worst fears, promptly wiping 39 per cent off the share price and leaving the stock worth around a quarter of the value it held when the credit crisis began in August.

But do the financial woes of one of Britain's largest buy-to-let lenders mean that the party is finally over for private landlords?

Certainly it is becoming much harder for landlords to get their hands on new loans. With the sector's third-largest player, Paragon, and fourth-largest, Northern Rock, having taken a big step back from the market, there is far less capacity available in the buy-to-let arena. The lenders that are left are tightening their criteria.

It's certainly not surprising that organisations such as Paragon who need to obtain finance to support a mortgage book are going to have serious problems. However the problems faced by Paragon shouldn't be seen as a negative for the entire landlord industry and buy-to-let market. Over the recent months, there have been very good gains that investor landlords have been able to look at as an on paper profit, if not to actually realise one that translates directly into their landlord investor bank statements. For those landlords already in the market, they may find that the uplift will not be as dramatic but the balance between rent and the cost of borrowing will improve a bit.

Perhaps this is why LetSafe's Rent Insurance and Rent Guarantee product remains so popular with UK landlords.

Find out more at http://www.letsafe.net/