Buy-to-let: Situation ‘critical’ as one in three landlords face remortgage struggle

There are warnings some landlords could be forced to sell their properties as high mortgage rates create affordability problems in the buy-to-let sector.

It comes as analysis by buy-to-let broker, Mortgages for Business, found as many as one in three property investors is struggling to remortgage after failing their lender’s affordability test.

And it said the situation is becoming ‘critical’ for those landlords with smaller portfolios of one or two properties many of whom are worrying about the removal of Section 21 notices, changes to energy efficiency rules and tax challenges on top of mortgage prices.

Gavin Richardson, managing director of Mortgages for Business said: “They’re right to be worried. We’re seeing landlords coming off rates of 3.5% and being unable to remortgage because, according to the lender’s stress test, their loan is no longer affordable.

“Unable to secure a new deal and with nowhere else to go their loans are reverting to the lenders standard variable rate, which average about 7.5%.

“In fact, in the worst case scenario, they are moving to their lender’s standard variable rate at rates as high as 9.5%.

“Their only other options are to pay a socking-great fee to secure a more reasonable interest rate, which can cost them tens of thousands of pounds. Or they can sell up and go home.”

It comes as Moneyfacts.co.uk revealed, whilst average buy-to-let mortgages rates had fallen month-on-month since the mortgage chaos in October, they had not dropped in price quite as significantly as residential products.

The choice of mortgage products has returned to more promising levels, with 2,400 deals on the market for buy-to-let landlords looking for finance.

However, based on average rates, those landlords coming off a five- or two-year fixed deal will find the latest rates are more than 2% higher than they were a year ago.

Rachel Springall, finance expert at Moneyfacts said: “As both the average two- and five-year fixed rates sit above 5%, compared to around 3% a year ago, it’s clear that landlords are likely to see their monthly repayments much higher than they perhaps anticipated.”

She echoed Richardson’s comments that these prices may force some landlords out of the market.

“There may even be those looking to sell up this year because of the rise in interest rates, tax changes for holiday lets and Capital Gains Tax (CGT) or even EPC requirements,” she said, “all of which dampen profit margins or investment returns on sale of a property.

“Landlords may be waiting for fixed mortgage rates to come down further or indeed opt for a tracker mortgage to give them more flexibility to eventually switch their deal.

“However, interest rates are only part of the decision-making process when entering a buy-to-let investment. Whether that be for new or existing landlords, it is always wise to seek advice to ensure it is the right time to commit to a deal.”