Buy-to-let mortgage rates are pulled and may return with much higher interest

Landlords in need of new fixed mortgages may struggle to find them as a large number of major lenders have closed deals following a dramatic drop in the value of the pound this week.

There are also fears that the loans will return to the market at much higher interest rates, and figures from This is Money suggest a nearly one percent increase in available five-year fixes in the past week.

This is expected to encourage landlords to increase rents so that they still make a profit.

Nearly 40 lenders, including major banks like Halifax and Santander, as well as regional building societies and buy-to-let specialists, have taken landlord mortgages off the market as they reassess their prices and bolster their own funding sources — and experts say more will follow.

It was fueled by a controversial mini-budget from Chancellor Kwasi Kwarteng, which shocked financial markets by promising £45 billion in unfunded tax cuts and a cap on energy bills that could cost £100 billion.

The pound is up about 7 percent against the dollar since it crashed to a low below $1.04 on Monday.

The key interest rate, which is currently at 2.25 percent after rising 0.5 percent last week, is now tipped to rise to 6 percent next year, which would spell a massive hike in interest rates on mortgages.

The move has also caused lenders to take hundreds of homeowners’ mortgages off the market, creating problems for those who need to take out a new mortgage or buy a new home.

Mortgage lenders are expected to launch new products for both landlords and homeowners, but not before the financial markets begin to stabilize.

A specialty lender would reintroduce buy-to-let products to the market at rates of about 6 percent, one broker said.

In August, the average 75 percent loan-to-value mortgage interest rate was 3.51 percent, according to broker Hamptons.

“I suspect with these rates it will make it very difficult for landlords where the yields are lower,” the broker said. “They’re probably going to raise rents soon.”

Rates on buy-to-let mortgages that remain available have risen significantly over the past week, following the hike in the mini-budget and base rate.

Data provided to This is Money by financial information service Defaqto shows that the average interest rate on a five-year fixed product rose by 0.94 percent between September 22 and 30, from 5.28 percent to 6.22 percent.

This applies to all loan-to-value tranches and covers mortgages for both individual landlords and limited liability companies.

However, the increase in two-year fixed deals was less dramatic, from 4.99 percent to 5.16 percent.

Demand for two-year fixes is currently limited, as many investors expect interest rates to still be high at the end of that period, and want them to fixate for a longer period of time to protect themselves from further increases.

Angus Stewart, chief executive of mortgage broker Property Master, said “the majority” of the lenders it worked with had withdrawn their landlord’s mortgages, and “more will follow in the coming days.”

Worryingly, other brokers told This is Money that some specialist buy-to-let lenders were withdrawing mortgage offers that had already been negotiated due to the new uncertainty.

This has not been the case in the homeowners’ market, where realtors have reported that lenders are honoring previously offered rates for those already in the mortgage application process.

“The lenders have withdrawn their fixed rates and are offering buy-to-let customers a variable interest rate if they want to continue,” said one of them.

“Others give brokers two weeks to apply to offer podium,” they continued, “after that time, fixed-rate deals are not honored.”

Stewart continues: “We are seeing buy-to-let mortgage products disappearing from the market at an unprecedented level.

“This is a major concern for the sector. We are experiencing reduced choice in the buy-to-let market, which in turn will have a further impact on rising mortgage costs.

“The fear now is that we will see many landlords choosing to exit the market and that this will result in a reduced supply of private rental properties, which will further increase the pressure on rents.”

According to Hamptons, rental growth reached an all-time high of 11.5 percent in the year to May 2022, but has since fallen to 7.4 percent. The average UK home rents for £1,165 a month.

With base rates set to rise even further, Stewart advised landlords to take out a new fixed-rate mortgage as soon as possible once the deals came back on the market, to protect them from future rate hikes.

Experts have also suggested that rising mortgage rates could prompt landlords to exit the market in large numbers, especially as the Bank of England base rate is tipped to climb further.

Real estate agent Hamptons has said many will face higher expenses if they re-mortgage.

Between August 2021 and August 2022, the average mortgage rate on a typical 75 percent loan-to-value buy-to-let mortgage rose from 1.79 percent to 3.51 percent — and that was before the latest hike in the base rate and mini – Budget caused rates to skyrocket even further.

Based on the above figures, the average landlord who bought a £222,000 owner-occupied home in 2021 would have seen their annual interest-only mortgage payments nearly double from £3,010 to £5,903 if they took out another mortgage last month.

If last week’s base rate hike from 0.5 percent to 2.25 percent were passed on in full, it would increase payments to £6,743 for an investor who takes out another mortgage this month, according to Hamptons.

As a result, a higher tax-paying investor’s net annual profit after expenses and taxes, earning an average return of 6.1 percent, could fall from £3,198 in August 2021 to £212 at the new base rate, down 93 percent. , due to higher rates on remortgages.

About half of landlords finance their real estate purchases with a mortgage.