A recent announcement from Leeds Building Society ruffled more than a few feathers in the property world. The lender publicly declared it was withdrawing new lending on second home purchases, preferring to concentrate on first-timer buyers, second steppers and the affordable housing market.
You had to read the statement in full for confirmation of what purchases qualified as a second home in the eyes of Leeds Building Society. To the relief of many landlords, the lender will continue to work with property investors who intend to rent out their property – either to full-time tenants or to holiday makers.
So far, so good but for how long? The Daily Telegraph recently carried a story claiming banks and building societies could stop offering buy-to-let loans in the wake of proposed changes set out in the Fairer Private Rental Sector White Paper.
The article claimed that Section 21 ‘no fault’ evictions were what gave lenders confidence to start offering buy-to-let mortgages to the masses in the 1990s. The general consensus among finance experts is that lenders could be ‘spooked’ when Section 21 notices are banned. Some may reduce the number of buy-to-let products they offer, or products could be withdrawn completely. The article ended with news that of the 12 buy-to-let lenders the newspaper approached, only four had no plans to change their lending policies in light of Section 21s being abolished.
Buy-to-let loans are getting more expensive
Some quarters of the mortgage market are sensing panic among landlords and are trying to ease worries by reiterating the long-term approach to property investment. While this is true on the whole, it doesn’t change the short-term outlook of rising mortgage rates.
The current average buy-to-let mortgage rate is around 4.01% for a two-year fixed product – a figure that Which? says is the highest since September 2015 and twice the rate a landlord could secure in May 2020. With the Bank of England still grappling with runaway inflation and more base rate hikes on the cards, financial advisers are forecasting buy-to-let mortgage rates of around 5% in the near future.
And you’ll pay more to arrange the best rates
Of course, the lowest mortgage interest rates are offered to those with the best loan-to-value and while this represents cheaper monthly repayments, there is an emerging trend to claw back profit via arrangement fees. Some of the most attractive buy-to-let mortgages carry arrangement fees that are expressed as a percentage of the amount loaned. For example, a 2% arrangement fee attached to a £200,000 loan would equate to £4,000. This is more than twice the industry-standard flat arrangement fees of £1,495 and £1,999.
If you are a landlord worried that rising mortgage rates will shrink your profits or eradicate them altogether, it may be time to exit the buy-to-let market. Landlord Buyers offer a quick cash sale with exchange in seven working days – ideal for investors whose fixed-rate mortgage is about to expire. Our free no-obligation valuation is the quickest way to start your sale, or contact our friendly team to discuss your predicament.