TSB becomes first lender to extend the mortgage charter to buy-to-let – but will landlords really benefit?

Economy
By Liam

TSB becomes the first lender to expand the mortgage charter to buy-to-let – but will landlords really benefit?

  • Lenders that have signed up to the charter allow borrowers to switch to interest-only loans
  • But this may not help, as many landlords already have such a mortgage

By Frans Ivens

Updated:

TSB has extended the mortgage charter to its customers who want to buy for rent, allowing landlords to switch to interest-only for up to six months.

This month, the government, together with lenders and the Financial Conduct Authority, introduced a package of measures to support borrowers with rising mortgage rates.

Lenders, including NatWest, Nationwide, Barclays, are now allowing home loan customers to switch to interest-only payments or extend their loan term to six months without hurting their credit score.

TSB has extended the mortgage statute for buy-to-let borrowers, providing greater security if they experience difficulties making their mortgage payments

For example, someone with a term of 20 years can temporarily switch to a term of 40 years and thus reduce his monthly costs.

At the time of its introduction, however, the package only applied to residential mortgages, not to buy-to-let. TSB is the first lender to also extend the measures to landlords.

Nicola Bannister, TSB’s director of financial support, said: ‘We have a range of ways to help all TSB customers affected by the rising cost of living – including those who are concerned about their mortgage payments, both residential and rental. We continue to encourage those customers to contact us as soon as possible.”

However, experts have questioned how much help the charter will really be for mortgage borrowers who qualify for rent.

Since owner-occupied homes are often purchased as an investment for the rental income, there is less incentive for the owner to pay off the equity, making them more likely to opt for an interest-only loan in the first place.

As a result, the option to extend the term of the mortgage, under the charter, also loses its impact, as this option only reduces the repayment portion of a loan with equity and not the interest expense.

Ray Boulger, senior technical manager for mortgages at John Charcol, told This is Money: ‘I don’t see the mortgage charter being of much help to investors for rentals as the two main principles were that you can extend your term and only pay back six months.

“The one feature that might help them is that the repossession process doesn’t start until at least a year after the first missed mortgage payment, so investors can buy some time to rent out, but I don’t see the other measures being very helpful.”

Buy-to-let mortgages are often more exposed to interest rate increases compared to home amortization loans because owners do not increase their equity in the property and therefore reduce their mortgage payments over the life of the loan.

According to Moneyfacts, the average two-year fixed buy-to-let rate is 6.96 percent and 6.82 percent for a five-year fix. The two-year average fixation last July was 3.75 percent.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate contract is about to expire, or because they have agreed on a home purchase, should explore their options as soon as possible.

This is Money’s best mortgage interest calculator powered by L&C that can show you deals that match your mortgage and property value

What if I have to borrow again?

Borrowers should compare rates and speak with a mortgage broker and be prepared to trade to secure a rate.

Anyone with a fixed-rate deal expiring in the next six to nine months should research how much it would cost them to re-mortgage now — and consider getting a new deal.

Most mortgage agreements allow fees to be added to the loan and are not charged until it is closed. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I buy a house?

Those with an agreed home purchase should also aim to secure rates as soon as possible so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overextend themselves and be prepared for the possibility that house prices could fall from their current highs, due to higher mortgage rates limiting people’s borrowing capacity.

Compare mortgage payments

The best way to compare mortgage rates and find the right deal for you is to talk to a good real estate agent.

You can use our best mortgage interest calculator to display deals that match your home value, mortgage size, term and fixed interest needs.

Bear in mind, however, that rates can change quickly, so if you need a mortgage, the advice is to compare rates and then speak to an estate agent as soon as possible so they can help you find the right mortgage for you.

> Check out the best fixed rate mortgages you can apply for

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