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Landlords paying more for BTL mortgages despite base rate hold

The Bank of England may have voted to keep its base rate at a historic low of 0.1 per cent yesterday, but there’s still bad news on mortgages for landlords.

According to Angus Stewart, chief executive of online specialist broker Property Master, many buy to let mortgage rates were creeping up even ahead of yesterday’s monetary policy committee meeting. 

“Lenders think that sooner or later the era of record low interest rates will come to an end.  I am afraid that the starting pistol on rising rates has already been fired” he warns.

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“A rising interest rate environment for landlords will increase costs and knock confidence in the sector. Landlords have seen a raft of tax and regulatory changes that have chipped away at the profitability of their businesses.  

“But this hit has been largely masked by very low interest rates. This is no longer the case, and we must brace ourselves for the smaller players in this market to decide that being a landlord no longer makes sense for them. Inevitably, this will lead to a shortage of rented accommodation and higher rents.” 

It’s thought that a base rate rise - when it eventually comes, possibly as soon as early December - would have proportionately greater impact on the rental sector than the owner occupied majority of the housing market.

Around 50 per cent of all owner-occupied homes are owned outright anyway, with no mortgage owed on them, and of the rest around three quarters have fixed rate mortgage deals, meaning their repayments won’t change until their current deal ends. 

The remaining two million owner occupiers are on standard variable rate mortgages or tracker mortgages so their repayments will go up as individual mortgage lenders increase their rates in response to the Bank of England announcement.

However, for landlords any rate rise - reflected in higher interest rates from buy to let lenders - would mean that income via rents would have to rise too.

 

Buy to let lenders have strict affordability requirements and typically expect rents to cover 125 to 145 per cent of the monthly mortgage payment - so if that monthly payment rose, so rents would have to increase to satisfy those lenders’ criteria.

In addition, if landlords were obliged to raise rents to satisfy lenders when they remortgage - but were unable to find tenants paying the higher rents - then they may exit the market, exacerbating the already-inadequate supply of properties to let.

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    Banks again showing their true colours?

    Risk of base rate rises, put up interest rates just in case - and then put them up again when rates do actually go up!

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    If you run an engineering business, banks look for 5% above base rates on loans. You get that if you put up personal collateral.

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