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Buy-to-let mortgages

Journalist: Melissa Lawford, The Telegraph

ended 11. November 2022

I'm looking at what rising mortgage rates mean for buy-to-let landlords. 

  • Are you seeing any buy-to-let landlords who are coming to the end of their fixed-rate deals and are unable to remortgage because higher mortgage rates mean they no longer meet the minimum ICR requirements? 
  • Are you seeing landlords whose profits have been hit because of higher mortgage rates? 
  • How are they reacting - are they raising rents, or using cash to increase their equity, or selling up?
  • To what extent will this be a growing problem through 2023 and 2024?
  • In what parts of the country are landlords worst affected?

6 responses from the Newspage community

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Craig Fish
Director at Lodestone
We deal with a significant number of BTL landlords that range from a couple of properties to 70 properties plus. The message from all of them is that these rates are unsustainable, but the course of action they are taking is very different. Those with a small number of properties are seriously considering leaving the market, as they feel it is no longer cost-effective and financially viable. Only this week we spoke to a landlord whose fixed rate is ending in January. They currently benefit from a rate of 2.79% with a monthly payment of £627. The best option available to them on the high street is a fixed rate at 5.6% with a monthly payment of £1260, double what they pay now, and the best that their current lender is offering is 5.1% resulting in a payment of £1147. When you consider that the rental income is £1600, you can clearly see that after deducting agents' fees etc, they are going to be left with very little profit. Increasing rents is certainly on the cards they tell me. Conversely, when looking at those that we class as professional landlords with large portfolios, the story is quite different. Many of these are geared much lower across their portfolio and in some cases with properties that are unencumbered. These landlords are doing what they always do when the forecast is downbeat for property prices and look to raise capital, in order to snap up some bargains when the time is right. They are however more cautious when doing so than they previously would have been, because interest rates and stress tests are much higher. As such, they are now starting to consider much cheaper tracker or discount rate mortgages that offer flexibility to switch, without penalty, to lower fixed rates that are expected in the coming months. There is positive news now coming from lenders though who are now increasingly lowering their fixed rates and their stress tests. This is very welcome amongst the landlord and broker community alike. It's starting to look a lot like Christmas!
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Hannah Bashford
Director at Model Financial Solutions
This is currently an issue- I have a client who we secured a product for in Feb 2022, due to an error on the solicitors part it never completed and we are now battling to get it through with the provider as they now don’t fit the ICR calculation and would have to pay £18k to bring the loan down. I’ve also recently had a portfolio landlord looking to buy another property but when they ran the figures it was not going to produce a reasonable enough yield so they have decided not to go ahead. With interest rates coming down we’re seeing the ICR calculations come back down so it hopefully won’t be such a struggle for so many but it will make people think twice. I also have a couple considering keeping their property as a let to buy and releasing some capital to enable them to buy a home together but it’s looking unlikely we can make the calculations work in order for them to release enough capital so they will have to sell. Landlords have a double whammy at the moment- increased interest rates and the ICR calcs as well as the looming EPC requirements, some investment is going to be needed for many landlords but if they can withstand the short term investment needed they may see a stronger portfolio on the flip side.
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Marcus Wright
Managing Director at Bolton Business Finance
I have had a number of buy to let enquiries decide not to purchase the property when I have quoted the current available rates. Buy to let mortgage fixed rates have pretty much doubled since last year, making some low yielding properties unviable as an investment. Some landlords are opting for discount rates in the hope that the base rate does not increase another 2-3%. Increased mortgage costs will inevitably feed through to higher rents as landlords fixed deals end.
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Ashley Thomas
Director at Magni Finance
I have had a few clients that have said they will be looking to raise their rent as the new level of interest rates is unsustainable with the current returns. This is in particular in London where the yields are predominantly lower than the rest of the UK. If they don't increase the rent, they would have to seriously consider selling. As a High Net Worth mortgage broker, we help a lot of clients looking for funding over £1m. Most people think it won't impact these type of landlords as much. However, it will have a significant impact as a 3% increase on a £1m mortgage is around £2,500 more a month in interest. If it is in a standard structure under a personal name, the client would likely be paying a higher tax on the total rental income.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
"We are seeing buy-to-let landlords getting a real shock when they realise what their new monthly payments are going to be on their mortgages. Many are now weighing up whether it is worth them still being landlords as the rental income no longer covers their mortgage payments."
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Several of my landlord clients have put their assets on the market over the last three months as the viability of this sector starts to fail. Higher affordability thresholds mean mortgage options are very limited, and that’s on top of an already very unfavourable tax regime that makes buy to let’s a really poor investment choice. The raise in rates will filter down to renters who will see their monthly commitments increase as landlords will need to meet lenders requirements in order to remortgage. Other landlords are holding on, knowing it will be difficult to offload their portfolio at the moment whilst economy isn’t playing ball. However they have signalled their commitment to reduce their exposure when the market allows.