Copy article

Buy-to-let remortgage shock

Journalist: Melissa Lawford, The Telegraph

ended 14. December 2022

I'm writing a story about how high mortgage rates will hit landlords coming to the end of fixed-rate deals. Are you seeing landlords coming to the end of fixed rate deals who are struggling to refinance because they can no longer pass affordability stress tests such as ICRs? How much are their profit margins falling/are their properties becoming loss making? Are they raising their rents as a result/by how much? Are you seeing landlords sell up as a result? Do you think landlords will sell up on a scale that will have a material impact on the housing market?

7 responses from the Newspage community

Copy all

Copy

Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
​​Landlords will be hit disproportionately hard by rising rates as all of their lending is, typically, on interest only. I have just had a borrower who has remortgaged £150,000 and his monthly payments have increased from less than £250 to £670. After paying insurance and management fees he receives £870 per month. Thankfully he is only a basic-rate taxpayer or else he would be making no profit, but the amount he is in the black has decreased from £620 per month to a measly £200 before tax. He's told me that he intends to sell next year when the market is more liquid. He will be waiting for some time for the market to drop and come back to where it was though, this might not be until 2024.
Copy

Editor
Craig Fish
Director at Lodestone Mortgages
We are speaking to many landlords who are in a real quandary. Because of the increased interest coverage ratio (ICR) calculations that lenders have imposed, the options available to most landlords are simply zero in most cases. The only option for most is to stick with their existing lender, who doesn’t offer the best rates. In some cases, the profits have disappeared completely so these landlords are saying that rents are going to have to increase. This is of course going to cause tenants an issue in the New Year when coupled with increased energy costs etc. The portfolio landlords seem to be okay as their portfolios are not so highly geared, but those who only have one or two properties or haven't been landlords for long are struggling, and selling is likely the only solution. This is positive for first-time buyers as more stock and low
Copy

Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
I am now seeing landlords having to make big decisions as their mortgage rates come to an end. The increased mortgage payments are a shock to many, having only bought their properties in the last ten years or so when rates have been low. Some are looking to sell as the mortgage payments are too high. Others are looking to put up rents to cover the increase. Many are failing stress tests and having to take new deals with the existing lender. Even experienced landlords who have owned properties for 20+ years are surprised by the rates and seem to have forgotten what life was like before 2008.
Copy

Marcus Wright
Managing Director at Bolton Business Finance
There is no doubt about it, many landlords are going to be shocked when their current rate ends and interest payments potentially double. This is a much bigger issue on low-yielding properties like those in London and the South East, less so in some Northern areas with much stronger yields. The impact has been limited so far due to the short period of time at higher rates but we are already seeing investors walk away from deals after getting quotes on rates.
Copy

Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
This is not only impacting existing landlords, but also new landlords who potentially would like to enter the buy-to-let market. I have a client who would like to convert their existing property to a rental property and buy a new onward residential property. Most of the deposit for the onward residential property is being raised by remortgaging their existing house to a buy-to-let mortgage. Prior to the mini-budget, a £200,000 buy-to-let mortgage would have been possible. Now it is £145,000, so a higher residential mortgage needs to be taken due to a lower deposit raised. Unfortunately for them, the timing of finding a property was wrong. Different lenders are having varying stress tests, which limits the choice of lenders. In some cases, it is the choice of a high rate and obtaining a mortgage, or not getting a mortgage.
Copy

Ashley Thomas
Director at Magni Finance
It’s very tough for landlords right now. I have had a number of clients that have looked to increase the rent to partially cover the higher mortgage costs. Some are seriously considering selling due to the low yield.

However, as always, where there are concerns with the property market, there will be some who will take risks and potentially benefit. In the past capital appreciation on properties has increased over the long term.
Copy

Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
Landlords coming to the end of fixed rate deals are struggling to refinance due to no longer passing affordability tests. This is generally due to having failed to raise rents in line with rates and sympathising with their tenants during this cost of living crisis. In most cases, they would need uplifts of circa 20% to get back on track. Those on variable rates who previously were happy to stay put are now also looking to refinance with the rate creeping upwards. We’ve seen landlords looking to sell after the re-adjustment following the mini-budget mess. The markets are starting to calm down now and a lot of landlords are holding out hope for a little while just to see if things do get better in the new year.