Landlords in need of new fixed mortgages may struggle to find them, as large segments of lenders closed deals after the pound’s sharp fall in value this week.
There are also concerns about loans returning to the market at much higher interest rates, with figures This is Money seeing showing an increase of nearly 1 percent over available five-year fixes last week.
This is expected to drive landlords to increase rents so they can continue to make a profit.
Mortgage chaos: Lenders pull loans in buy-to-let space after controversial government announcement, plus deals for landlord squatters
Nearly 40 lenders, including major banks such as Halifax and Santander as well as regional building associations and buy-to-lease specialists, have pulled mortgages off the market as they reassess their rates and shore up their funding sources — and experts say more will follow suit.
It was sparked by a controversial mini-budget put forward by Chancellor Kwasi Kwarting, who spooked financial markets with his pledge of £45bn in unfunded tax cuts and a cap on energy bills that could cost £100bn.
The pound has risen about 7 percent against the dollar since it fell to a record low of $1.04 on Monday.
The base rate, which stands at 2.25 percent after last week’s 0.5 percent rise, is now expected to rise to 6 percent next year, which would mean a massive hike in interest rates charged on mortgages.
The move also saw lenders pull hundreds of homeowner’s mortgages off the market, causing problems for those needing to remortgage or purchase a new home.
Mortgage lenders are expected to launch new products for both landlords and homeowners, but not until the financial markets begin to stabilize.
One specialist lender said it was about to bring buy-to-let products back on the market at rates of around 6 per cent.
Rising Rents: Landlords may decide to increase rents if mortgage interest costs go up
In August, average interest rates on a 75 percent buy-to-let mortgage were 3.51 percent, according to the Hamptons real estate agent.
“I suspect that these rates will make it very difficult for realtors as the returns are lower,” the broker said. “They will probably look to increase rents soon.”
Mortgages that are still available have increased significantly in the past week, following the mini budget and the prime rate increase.
Data provided to This is Money by financial information service Defaqto shows that the average interest rate on a fixed-five-year product rose 0.94 percent between September 22 and 30, from 5.28 percent to 6.22 percent.
This applies to all loan-to-value categories, and covers mortgages for both individual and limited business owners.
The increase in two-year flat deals was less dramatic, however, going from 4.99 percent to 5.16 percent.
Demand for two-year fixes is limited at the moment because many investors expect interest rates may still be high when that period ends, and want to fix for a longer period to protect themselves from further hikes.
| Date | Average price (all repair lengths) | Average price (2-year repair) | Average price (five-year repair) |
|---|---|---|---|
| Sept. 22 | 5.15% | 4.99% | 5.28% |
| September 30th | 5.51% | 5.16% | 6.22% |
| Source: Defaqto | |||
Angus Stewart, CEO of real estate broker Property Master, said the “majority” of lenders I’ve worked with have withdrawn their mortgages, with “more to come in the days ahead”.
Alarmingly, other brokers told This is Money that some lenders specializing in buy-to-let are withdrawing mortgage offers that have already been agreed upon due to the new uncertainty.
This has not been the case in the homeowner’s market, where Realtors report that lenders honor pre-offered rates to those who are already going through the mortgage application process.
The fear now is that we will see many landlords exit the market, which will lead to a decrease in the supply of private rental properties which will put more pressure on rents.
Angus Stewart, mortgage broker
One said, “Lenders have pulled their fixed rates and are offering customers to buy in order to allow them a variable rate if they still want to move forward.”
“Others give brokers a two-week period for an application to submit stage,” they continued, “after this time fixed-price deals will no longer be honored.”
Stewart continued: “We are seeing buy-to-let mortgage products being removed from the market at an unparalleled level.
This is very worrying for the sector. We are facing fewer choices in the buy-to-let market which in turn will have an additional impact on the higher cost of mortgages.
“The fear now is that we will see many landlords opting out of the market, resulting in a lower supply of private rental properties which will put more pressure on rents.”
Rent growth hit a record 11.5 percent in the year ending May 2022, according to Hamptons, but has since fallen to 7.4 percent. Average property rents in the UK are £1,165 per month.
Rising: Hamptons research shows rent growth peaked in May 2022
With the base rate tending to be higher, Stewart’s advice to landlords was to secure a new fixed-rate mortgage as soon as possible once deals were back on the market, which would protect them from future interest rate increases.
Experts have also suggested that rising mortgage rates could prompt landlords to exit the market in droves, especially as the Bank of England’s base rate tends to continue moving upwards.
The Hamptons real estate agent said that many will face higher expenses when it comes to remortgaging.
Between August 2021 and August 2022, the average mortgage rate on a typical 75 percent loan-to-value to buy-to-let mortgage increased from 1.79 percent to 3.51 percent — and that was before the last base rate increase. And the little one. The budget has caused prices to go up even further.
Based on the figures above, the average property owner who bought £222,000 in 2021 would have seen their annual interest-only mortgage payments nearly double from £3,010 to £5,903 if they had been remortgaged last month.
If the 0.5 per cent base rate was passed last week to 2.25 per cent in full, the Hamptons said, this would increase payments to £6,743 for an investor who remortgage this month.
As a result, the annual net profit after costs and taxes made by an investor who pays taxes at the higher rate, which yields an average return of 6.1 per cent, could fall from £3,198 in August 2021 to £212 with the new base rate, down 93 percent, due to higher rates when remortgaging.
Nearly half of realtors finance their real estate purchases with a mortgage.
The Owner’s Authority submits the rescue plan to the advisor
Letter: The NRLA has written to Counselor Kwasi Quarting to outline its plan to support the buy-to-let and tenant sector
In response to the events of the past week, the industry body, the National Association of Residential Landlords, has proposed a “cost-of-living plan” for the sector, which it detailed in a letter to the chancellor.
She said her plan would help renters be able to pay rent and prevent landlords from selling, ensuring there are enough homes to rent for those who need them.
Proposals include unfreezing housing benefit rates, expanding access to emergency housing support for those who do not receive benefits,
It also called for the £400 payment for the energy bill subsidy scheme, which is in the form of a series of energy bill deductions, to be scrapped, and instead paid directly to each household at once to be used to raise the cost of living.
Finally, she said that to encourage landlords to stay in the sector, the government should reverse the decision to restrict homeowner mortgage interest relief, and end the additional 3 percent stamp tax on home purchases to rent.
Ben Biddle, chief executive of the National Association of Residential Landlords, said: “Both landlords and renters are grappling with the cost of living crisis.
“We need a package that supports both to prevent rent arrears and to maintain rents.”
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