Mortgage experts speaking to a committee of MPs have given an especially gloomy forecast for the buy to let sector in the short term.
The experts told the Treasury Select Committee that landlords will face a stark choice between increasing rents further to try to break even or selling up because they cannot cover mortgage costs following the latest Bank of England base rate rise.
Ray Boulger, the highly-respected senior technical director at broker John Charcol, said: “What we’re seeing now is criteria changes and we’re finding situations where clients are not able to proceed with the amount they originally planned to borrow because of criteria changes. It’s not all about rate, it’s rate and criteria, particularly stress test rates, they’ve been changed as a result of rates going up.”
Charles Roe, director of mortgages at UK Finance - the trade body for mortgage lenders - told the committee how the disastrous mini-Budget in September had led to mortgage lenders withdrawing products to re-price them upwards.
“Products were available. But lenders were also dealing with a large number of phone calls and requests that came in from borrowers who were concerned about their finances, would they be able to re-mortgage.
“But throughout that period, lenders were offering follow-on products to those borrowers that came to the end of a fixed-rate product.
“We’re seeing the markets return to much more stability over the course of the last two to three weeks. As a result of that, swap rates [key to determining mortgage interest rates] have come down and in turn lenders are reducing their mortgage rates.
“When the yield on long-term gilts, so the yield on five-year gilts, goes up, the swap curve goes up, and the cost of hedging a five-year fixed-rate mortgage goes up.”
Chris Rhodes, chief finance officer at Nationwide Building Society, commented to MPs: “It’s marginally profitable for new buy-to-let investors if not loss making to take on board a new property, so I think there are potentially implications there in the medium term for the sustainability of the buy to let market.”
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All comes down to gearing, those that are too highly geared could well be in a loss situation, so the best advice is to pay down debt, if that means selling then so be it
Those Student Flats are a different ball game altogether.
There are a number of factors for a start they have the ear of the Government to help them and drive us out so the Tenants have to rent from them and pay much higher rent. They are going to be allowed to keep AST / fixed term Contracts and we are not. The scale of the operation building multi-storey Blocks hundreds of units next to Tube Stations in London. There’s as said charging much higher premium by getting us out of the market so they won’t have any competition plus it’s our Tenants they want as well it stinks. All those Regulation’s are impacting on Renter’s having to pay more, yet they pretend to be their friend helping them to justify their case to attract us. Divide & Conquer same old tactics.
Now I must go and look after my Business while it still exists.
Let's stop blaming the mini budget. Rates had increased massively before that. I applied for a mortgage in April at 2.95% on a 5 year fix and the broker made a mistake on the application (which I spotted and told him about in May). He didn't rectify it and when the offer came through for the wrong product the lender said if I wanted the 5 year term it would be 4.95%. That's long before Truss and Kwasi were appointed and far more to do with the BoE.
Even though rates spiked they are going back down now things have calmed. But they are inevitably on the way up.
Jo, that's a lot less than inflation. Trusses budget caused pension funds to sell off their assets. Apparently they increase returns by using LDIs , which seem to be gambling to me. They rely on borrowing cheap money and then investing it.
Just for clarity, there is no equivalence between general inflation and mortgage interest rates. If inflation goes up 10% then goods cost 10% more on average, so if your monthly spending was £1000 you'd pay an extra £100 per month. You can decide to buy less or buy cheaper stuff. If you have a mortgage of say £200,000 and interest rates go up by 10% then it would be crippling. On interest only basis if you were paying 3% that's £500 per month. At 13% that would be £2166. That's not a 10% increase on £500 which would be only £50. I think tenants are maybe expecting a 10% increase on their rent but this wouldn't even cover a 1% increase in mortgage interest rates. 1% on £100,000 interest only is £83 per month so unless the rent is already £830 then a 10% increase does not cover it.
Edwin - it was a 68% increase. Don't forget BTL mortgages are interest only. £100000 at 2.95% is £2950 per year. At 4.95% the payments are £4950 per year.
How is that less than inflation?
Yes, but was it the budget that caused the sell off? So it's just a coincidence that the BoE first announced QT the day before? Don't forget that virtually everything in the budget was pre-announced. The only new information that day was the scale of the energy cap which happened to be the most material item that nobody seemed to give a sh1t about. And our energy cap spending was eclipsed by Germany's...and again, nobody batted an eyelid to that either.
So what was the real change on the Friday? The BoE unwinding its QE balance sheet....
Jo, inflation is around 12 % and 17%,for basic foodstuffs. Therefore any savings are depleting by 12% per annum minus any interest, often negligible and a lot more if you buy basic foodstuffs. Your maths are like the building workers who l employ. Savers have been subsidizing your business for years.
I take it you are not a landlord then?
Savers have always had the opportunity to take the same risks and put in the same efforts as Landlords who pay them to play it safe.
Hard work and investment risk deserves to be rewarded much more than playing it safe and taking it easy just sticking your money in the building society.
I can't see how savers subsidise landlords. Their money is put in the bank. The bank lends it out and takes a profit too. Savers are paid for their money. Savers can take their money away anytime they want. Noone made them put it in the bank.
Edwin - if a jar of coffee cost £3 and the price increases by 20% it will now cost £3.60.
If my mortgage payments at 2.95% interest were £2950 and at 4.95% are now £4950 that's clearly a 68% increase.
In reality now Hunt and Sunak are in charge a 5 year fix is now closer to 6.53%, so payments are £6530 a year which is about 122% increase since Easter.
Fortunately, as all landlords know, finance costs are only one element of owning rental properties and inflation on most other costs is somewhat lower.
Jo, the rate of inflation of interest rates isn't really the point.
Yes, as they increase, they increase homeowners expenditure and are a component of RPI (not CPI).
But from a property investor perspective the real relevance is yield vs mortgage rate (vs gearing) and property price inflation & inflation.
‘Savers subsidising businesses’ not the whole story. Majority of banking systems is fractional reserve as opposed to 100%. Our savings are a liability to a standard bank
Nick obviously you don't save money and you obviously don't do maths,! A lot of people here obviously don't either ,! If you loan the bank 10k and get interest of 4 % and inflation is 10% you are losing 6 % of your investment. Ie £ 600 per annum. Banks are a government run cartel. cartel.6annum.
Edwin - you are looking at it as a saver not a borrower.
Landlords are predominantly borrowers (although we are often savers as well in a more minor way). It is standard business practice for businesses to borrow money to finance their business activities.
Edwin. I do save money. I have a lot sitting in the bank as I'm not putting it into anything atm. I also did A level maths.
I agree with your numbers but what's your point? They reduced rates so people could borrow more and save less. To stimulate the economy. It's called monetary policy. You've obviously never heard of that!
Jahan Khan can't agree with you. Fractional reserve banking allows the bank to lend a lot more than it borrows. So your deposit is a fraction of the money loaned.
Hi Edwin What I’m saying is the bank would rather lend money out as they make more than holding it on your or my behalf. FR allows them to lend with hardly any ‘real’ assets within the bank. The gov supports each acc holder to (is it £85k) they are being reckless with not just our savings that they hold in contempt but knowing the gov will pick up the loss of an issue - eg BOS
Edwin - My maths is not great. I am confused as to what the point is of your comments. Please explain in simple terms exactly what your argument is about.
Jo I understand that’s cheap so when do you pay the capital. I think people were banking on property go up further ever.
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