The report also said the supply and demand dynamics for rental accommodation appear to support buy-to-let borrower performance in the medium term in the UK and suggested these dynamics may keep upward pressure on rents and shorten average vacancy periods.
Mark Boyce, credit analyst at S&P, said: "Despite these positives we believe that changes in interest rates will more closely affect the credit performance of buy-to-let borrowers than that of owner-occupiers.
"While record low interest rates and steady rents have pushed landlords' debt servicing ability to healthy levels, our analysis suggests that a rise in interest rates could cause the average debt service coverage ratio to fall by about 40% by the end of 2012.
“Furthermore, even relatively mild house price declines over the next two years could place more than 30% of buy-to-let borrowers in negative equity, reducing their financial flexibility and thus risking a rise in arrears."
