According to the Financial Services Authority one in every five homes could suffer from negative equity as Britain falls deeper into the economic downturn. In their Financial Risk Outlook for 2009 the FSA anticipate property prices to decline around 30% leaving over 2 million homeowners with the prospect of negative equity. They suggest that some segments will be worse off then others, however, a huge area of concern is the buy to let sector. It is estimated that around 500,000 buy to let investors may have to face the reality of negative equity, especially if they have bought their property at the peak in 2007.

 
These concerns are certainly not unfounded as the Nationwide House Price Index shows that house prices have already fallen 19% since their peak in 2007, with estimates suggesting that a further decline of 10-15% is possible. Any decrease tends to impact the buy to let sector hardest as investment properties are more sensitive to expectations in property prices and rental yields. One saving grace for buy to let owners is the fact that the interest rate is at a historic low at 1%, which in some cases will reduce their monthly mortgage repayments.

 
As the property market dries up many owners turn to renting their property as an alternative to selling. This creates an excessive supply of properties on the market which drives rental income down. Since buy to let owners typically pay a higher rate of interest then residential mortgage holders they will be more vulnerable to falling rental yields therefore increasing the chances of them defaulting. During this period ‘accidental’ renters should take extra care and precaution to avoid falling into arrears especially since the Council of Mortgage Lenders forecasts that it will be on the rise in 2009.