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MAIL ON SUNDAY Buy-to-let mortgage rates and yields

Journalist: Sarah Davidson, Freelance

ended 23. August 2023

Hi all

Writing for the MOS and would like to know how higher mortgage rates have affected landlords over the past year. 

I want to get a regional idea of how much payments might have gone up from a rate taken a year ago compared to a rate taken today. 

  • Where are you based and what is your sense of your local market
  • How have higher rates affected your clients
  • Do yields stack up in your area
  • Why
  • Is it still worth buying into BTL

Really appreciate your time on this and a reminder that shorter, sound-bitier and snappier comments are always more likely to make it in….!

Thanks.

13 responses from the Newspage community

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Editor
Mike StatonVerified
Director at Staton Mortgages
The buy-to-let mortgage market has found itself the punching bag of the industry recently. Stress testing has led to lenders requiring unrealistic rental figures to meet affordability for the mortgage a landlord requires, this forces the landlord to remain with the lender they are currently with on extortionate rates, this is very close, if not the same as creating mortgage prisoners through no fault of the client. The fees lenders are charging are borderline profiteering. In a time when consumer duty is on everybody's lips, the buy-to-let industry seems to have ignored the process. We are starting to see more and more landlords put their properties on the market as it just isn't as fruitful as it once was. In a time when the UK is crying out for more homes, the government and the bank of England are doing a very good job at destroying the rental market.
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Stephen PerkinsVerified
Managing Director at Yellow Brick Mortgages
Landlords have been under attack from all sides. The recent rate increases have seen many forced to increase rents where able to do so, but this is not always possible depending on the terms of the tenancy. With the increased rates the lender stress-testing and affordability has meant most landlords are unable to re-mortgage to a new lender, instead having to switch rates with existing lenders, often with high arrangement fees.

Based in East Anglia we previously enjoyed several areas with yields over 6%, but now the returns for landlords have been reduced on all fronts, not just with the increased mortgage rates but also due to taxation policy. Many landlords instead are looking to sell, and new purchases are mainly for student lets and holiday lets which still have a workable margin for landlords. However, with fewer investors looking to buy, some landlords feel trapped like a spider in a bathtub.
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Darryl DhofferVerified
Founder at The Mortgage Geezer
Absolute massacre this year for Buy To Let transactions, particularly non-portfolio or accidental landlords, who have seen rates rise, which in turn has affected rental stress rates largely across the board with all lenders, which have seen many of our clients exit the market, unable to remortgage existing mortgage balances, and for purchases waining based on higher deposit levels required. Government Fair Rent Protection of a maximum of 7% increase up to March 2024 for some existing landlords have also restricted landlords remortgaging in this period with shortfalls in affordability, so looking down the barrel for limited lenders that offer deals that fit eligibility, but up to 7% in lender fees is daylight robbery! I accept protecting renters is paramount in this market, but also protecting the landlords surely must be viewed with some level of compassion - so unless you are a cash buyer, then yes, deals can be had with high yields - otherwise, many are not returning in their droves.
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Elliott CulleyVerified
Director at Switch Mortgage Finance
The increase in mortgage rates has had a profound impact on the BTL market. I believe this is a nationwide problem, but based in the South I believe the problem is inflated by house prices. It is now very difficult to make the rental income fit the lender's affordability calculation. Especially if the property is let on a single AST basis. Deposits now need to be higher and it is very difficult to take out max lending on a BTL property in the current market. This is why we have seen mortgage lenders come in with rates around the 4% mark, but coming with high product fees. The portfolio landlords I deal with are mainly looking at properties with higher rental yields. In most cases, this is HMO properties or multi-unit flats.
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Jamie AlexanderVerified
Mortgage Director at Alexander Southwell Mortgages
The whole of 2023 has been extremely tough on buy to let, especially in our local area in Southampton and anywhere south. It hit a point where it was pretty much pointless for the average landlord to have an investment property as they weren't making any money on them.

In recent months are seeing a small amount of activity with investors but they are having to put down a larger deposit of 40-50% is the norm at the moment. In my personal opinion I don't think it is a bad time to buy as there are a lot more competitive deals on the market and vendors are taking lower offers, if you are thinking long term, I still think BTL properties are a good investment.
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Ashley ThomasVerified
Director at Magni Finance
Unless you have a significant deposit in London, it is very hard to get a mortgage with the current rates and yields. For those with portfolios or a lot of equity in the properties, most have continued to keep instead of selling.

We have seen a trend with all landlords increasing rent to pass on some of the increased costs. It's inevitable as landlords had to do this with their mortgage costs more than doubled in some cases.
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James Miles0
Director - Mortgage Adviser at The Mortgage Quarter
I'm based in Exeter and the BTL market is proving harder to navigate with deposits now typically being under 50%, compared to 75% a year ago. Even with spiralling rental prices the stress rates from lenders are impossible to make fit; unless you take a chance on the exorbitant lender fee products which is day light robbery. I am seeing landlords diversifying into the sharer market to increase their rental income and allow the stress rates to fit.
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Anil MistryVerified
Director and Mortgage Broker at RNR Mortgage Solutions
Since October of last year, my clients have been grappling with the effects of this situation. This pertains to both potential property buyers and those seeking new deals for rates coming to an end. The issue arises from the high property prices in Leicester combined with relatively lower rental costs compared to other cities, creating a barrier for clients to secure necessary mortgages. Unless we can connect with lenders who consider a portion of the client's income (known as top-slicing), many are forced to withdraw their plans. Additionally, clients aiming for new deals often find themselves sticking with their current lender due to these circumstances, instead of exploring remortgaging options with different lenders.
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Clive Read0
Owner at Goldmanread
Based in Essex but cover London and The South East. I have numerous examples of clients who's rates have jumped. One client with 2 buy to lets whose monthly payments have increased from £279 to £900 on one flat and £325 to £1,000 on another. Unfortunately, the client has had to pass part of these mortgage increases across to the tenant in the form of higher rents. Many lenders are now asking for yields of 10% which in most area's including Essex are simply not stacking up. The only reason to buy now is for capital growth. For existing landlords with substantial equity in their properties or new borrowers with significant deposits, buy to let may still make sense. However with threatened tax and regulatory changes, it's likely that buy to let will move from being a cottage industry to a more professional/corporate concern.
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James Bull0
Mortgage Broker at JB Mortgages
Buy-to-let mortgage affordability is calculated by the amount of rent a property will achieve applied to a formula that will calculate if this will cover the mortgage payments. Low mortgage interest rates over the last few years have meant this was easily achievable and it was very easy to obtain the mortgage required. However, now interest rates have increased so does the rent needed to cover the mortgage payments. This is meaning higher deposits are required in order to proceed with buy-to-let purchases. At the end of the day a buy-to-let property is an investment, and if the returns do not stack up for landlords due to expensive mortgages then of course they will most likely put any purchases on hold, and this is what we are seeing in the market.
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Alastair HoyneVerified
CEO, Finanze Capital at Finanze Capital
Yields have certainly had to increase on properties much to the dismay of tenants and landlords alike. Contrary to popular belief the landlords do not rub their hands together in glee as they increase their tenants rents; knowing that this is a difficult time for many and increasing the rent could lose them the tenant all together, but not increasing the rent could cause the property to be un-mortgageable meaning the only option is to evict the tenant and sell up. Increasing rents on properties has been much more common in the south where yield has always been lower, another thing I am seeing A LOT is landlords moving away from standard tenancy agreements and instead letting their properties on a serviced accommodation basis or to let to social care providers as both choices are far more lucrative.
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Ross McMillanVerified
Owner/Mortgage Advisor at Blue Fish Mortgage Solutions
In Scotland,misguided government interventions,including the 6% additional dwelling tax and overbearing and restrictive regulation around evictions and price caps, have hit struggling landlords hard.Despite this,Scottish landlords -already grappling with soaring mortgage rates, excessive lender fees, and demanding stress tests, much like other parts of the UK- are mostly resilient and holding onto their portfolios with a long-term perspective. Contrary to Scottish Government intentions, rents are rising in scotland higher than anywhere else in the UK, as landlords are having to raise rents whenever possible and often aggressively to help balance the many financial challenges and regulatory risks they face.While yields have suffered due to high rates, a diversified portfolio can still bring decent returns and potential for long-term growth. However, the landscape of new buy-to-let purchases has all but disappeared, and unless rates and fees decrease significantly,change seems unlikely.
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Austyn JohnsonVerified
Founder at Mortgages For Actors
Landlords have struggled a bit, the higher stress tests have meant a lot of new remortgage loans did not reach the current outstanding loan and they have had to put money in. Luckily it is set to be available again one day, but with the cost of living going up too, they are not sure if they should put some of their own resources in! The higher loans therefore have been going to the higher rates specialist lenders who can help a bit with the loan but the client then pays for it by losing profit on the portfolio. Yealds in the north will usually stack up due to the lower cost of properties, but down south, they are struggling to keep it profitable. Its still worth being in BTL as an investor, but you need to carry out your research thoroughly. At the end of the day, investing often goes both ways and then eventually, climbs out of any ruts it fell in.