The era of cheap lending is over for all borrowers, including landlords using buy-to-let (BtL) mortgages. This shift is a result of rising inflation, rising interest rates and the fall-out from last September’s autumn statement. LandlordBuyer assesses the current situation and what options landlords have if they can't meet new BtL mortgage repayments

How are landlords affected by the rising interest rates?

Landlords are especially impacted by the end of cheap lending as many rely on BtL mortgages, which tend to have higher interest rates than residential mortgages. Landlords on fixed-rate mortgages that are ending soon may find a surprise waiting when they come to remortgage.

Where borrowers may have been able to fix at rates of around 2% before August 2022, interest-only, fixed-rate mortgages are now being offered at double that rate and more - in the region of 4% to 5%. This means repayments will double.

Landlords could be forced to sell up

Not only will landlords be unable to afford the higher repayments, which rent increases will probably not cover, many landlords may also fail BtL mortgage stress tests. In fact, research from buy-to-let specialists, Mortgages for Business, suggests that one in three landlords could be forced to sell house fast after failing their lender’s affordability test when they come to remortgage.

What is the stress test for buy-to-let mortgages?

The affordability or ‘stress’ test aims to check that a borrower can afford to continue making repayments if mortgage rates rise. It compares how much someone wants to borrow with the amount of rental income they will receive and the interest charged on the mortgage now, and should that rate rise in the future. It also factors in the rate of tax someone pays.

With interest rates rising of late and inflation proving hard to reign in, some landlords are faced with the prospect of selling a BtL or raising the rent to try to keep their investment property in profit, hoping that tenants can afford the increased rent.

Experts advise landlords to sell up

The co-founder of asset management company VAR Capital thinks the end is coming for landlords, saying: “We are advising our clients to sell buy-to-let properties, especially those in prime central London and held in personal names, as such investments will remain stressed and potentially unprofitable in the near future.”

Key take-aways

  • Mortgage rates for BtL loans are higher in 2023, when compared to 2022 and earlier
  • Rent rises may not cover the increasing cost of paying back a mortgage
  • Higher repayments and lower yields may see some landlords fail a lender’s ‘stress’ test
  • Selling BtLs may be the only option to avoid making a loss
  • A property is at risk of being repossessed if the owner can’t keep up with repayments

Sell direct to LandlordBuyer

If your fixed-rate mortgage deal is ending and you can’t afford the repayments for a new deal - or you’ve failed a lender’s stress test - sell direct to LandlordBuyer. We can provide you with a free cash offer for your property, regardless of whether it has sitting tenants, a poor EPC or a short lease.

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