A buy to let mortgage broker is warning landlords that as many as one in three investors fail their lender's affordability test.
Research by Mortgages for Business shows some buy to let investors who remortgage being forced to accept variable rates as high as 9.5 per cent as a result of failing affordability tests: others are selling up because they can no longer afford their loans.
Gavin Richardson, managing director of Mortgages for Business, says: “It's a critical situation for small landlords. They are worried about Section 21 reform and EPC regulations and tax. On top of that, they’re having to worry about higher mortgage rates. They’re right to be worried.
“We're seeing landlords coming off rates of 3.5 per cent 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 per cent.
“In fact, in the worst case scenario, they are moving to their lender's standard variable rate at rates as high as 9.5 per cent.
“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.”
A landlord charging £1,200 a month rent with a mortgage of £225,000 coming off a fixed rate of 3.99 per cent would now be offered a remortgage of £180,893, based on a rate of 5.49 per cent, falling £44,000 short of the loan amount they need to remortgage.
At a rate of 5.99 per cent the shortfall rises even higher to £59,207; at 6.29 per cent it is £67,114.
To be accepted for a remortgage of £225,000, the landlord would have to increase the rent they charge by nearly £300 to £1,495.
Some lenders offer landlord borrowers product transfers, a new deal without asking them to pass a new stress test. Others will allow borrowers to remortgage back to them at reduced fees, while a few are actively looking at ways to help.
“But not all of them will” concludes Richardson.
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It's just basic maths no one in government can seem to understand.
Time to dump BTL which I have been doing over the last few years now.
That's the risk of leverage for you..
It's a situation any of us could have found ourselves in. Until you've had a mortgage with a lender who doesn't offer an end of fix product switch it's not a question you would necessarily think to ask. Brokers certainly don't fall over themselves to mention it when finding a mortgage. There are times, when for various reasons, a scenario doesn't fit lending criteria for the more mainstream lenders. Back in 2015 I bought one house with my husband, son and daughter-in-law and another one adjoining one I already owned. For years I had had most of my mortgages either on lifetime trackers or with TMW so there had never been an end of fix problem. Suddenly I was with Fleet mortgages, who had only been trading a few months, on a 3 year fix. When I asked about end of deal switches no one could give me an answer. Fleet were too new to have got to the end of any fixes at that stage and the general attitude was that they would have something in place when the time came. At the end of the fix they couldn't offer anything, so the choice was either pay it off or remortgage elsewhere. That was difficult enough back then with rising valuations. In today's market it is a major problem. It gets even worse when you're helpless to do anything until the end of the fix due to early redemption penalties.
Agree It's really unfair when lenders now decide its too risky (for them) when at 75% LTV or less it's only ever been your money at risk. I am finding the smug people with no mortgages bit irritating just now. For most normal people the only way to get into BTL beyond maybe the first property has been with mortgages, which have been freely available. Without this there would be far fewer rental properties in the PRS and where would all those people be living?
Well apparently, Sad Landlord, as soon as we all sell up and there's no more landlords, every renter can magically afford to buy our former properties and become homeowners themselves. According to more mainstream forums anyway, who obviously know what they're talking about.
Sad Landlord.
It's not about 'fair' or 'smug'. Everyone knows the risk of a mortgage. You're told upfront that the product rolls onto the SVR at the end of the initial period and you're told what the current SVR is. There's no obligation for them to refix and there's nothing that guarantees the mortgage market will even exist when it comes to the end of the initial period.
B2L is a business with various risks attached to it. That's part of what we get paid for. Taking on risk.
Some people have become very wealthy by taking on leverage and unfortunately its not a one way street and can bite you in the arse.
A big part of any business is risk management and mitigating some risks and just accepting others.
For the last 20 years I've kept in my spreadsheet the cost of a 25% shock to house prices and also my exposure to a 4% shift in rates. It makes me 'keep it real'. These are not nonexistent risks.
Much as I hate the Gov't, I've been saying for about 8 years now that the main risk in b2l is political risk and it's something that I've decided is worth the risk, at least for the time being. But that's a conscious decision and my problem if they screw me more. I can't cry about it if it gets worse because I've chosen to continue this for now.
Agreed Chris, I have 16 properties all bought and paid for which came over a long period of time and a lot of very hard work, had I gone down the leveraged route I would likely have had 3 times that number now, but I didn't and I don't regret not doing so, if that makes me smug then so be it
It is up to us risk owners (Landlords) to understand what we get into. I have always based my portfolio on a 6% base rate, meaning around 8% mortgage rate. I would never have taken on a loan where the SVR is 4% above base rate at the end of the term. I warned any new Landlord I encountered the dangers of this. Plus I accept this as my risk.
However, Section 24 has not been allowed for and is causing me issues as well in the very near term my tenants. When you take out a 25 year loan to have some idiot bring in a scheme, not clearly explained at the beginning over a 4 year period is less than ideal.
That said having now sold 2 properties I have sufficient fund to work round this situation but it does significantly affect my wealth.
I would add, if I was 10 years older I would have found myself in a much better situation as I would have had the time to pay off my loans as I have been doing all these years.
Equally though if I had been 10 years younger I would be in a vulnerable state due to Section 24.
The next decision for me is whether to re-let properties I had intended to sell as the market has dipped more than I had expected. Recovery may have to wait until next year. Next few months should determine this issue and of course what this Chancellor does in the budget. Added to this conundrum is can my tenants afford the massive hikes in rent that I will need to apply.
Good luck to all.
I have adopted three different strategies for three different types of properties.
For our family house I borrowed as much as possible to buy the most expensive house I couldn't ( just about) afford on a standardrepayment mortgage.
I bought my first holiday home ( a derelict fisherman's cottage) on an overdraft and paid it off as soon as I could.
However, for BTL, I bought the first £60k flat on a £6k deposit, remortgaged as soon as I had 25% equity to put the deposits down on 2 more BTL flats and continued this strategy until about 2007 when I stopped buying any more.
I still have around £1 million in BTL mortgages but my equity is over £3 million and the mortgages cost around £20k per annum but generate another £60k out of £250k gross rental income and means my estate is £1 million lower than if I had paid these mortgages off.
My standard repayment route has led to equity of around £700k over 40 odd years, same for my original overdraft route on my first holiday home - now on my third one.
By contrast, by NEVER repaying any BTL mortgages, I have grown a £6k investment into a £3 million equity and £250k gross rental pa.
I guess it's horses for courses but had I adopted this latter strategy for my main home, I could possibly now have one worth £3 million mortgage free, and free of any CGT on downsizing. However I am/was prepared to risk repossession of BTL properties but not of my main home or current holiday home.
Peter trimm, l think you are right. A former female minister used spreadsheets, however l understand that no one could decipher them. She has now left parliament. The energy minister can not count or Reason. Apparently he can supply dearer energy but it's cheaper, and it's British. But the company delivering it is Danish so he's gone to Denmark to celebrate British power.
Jo,
From what you have written, mortgagees have dumped you, and you are now with a mortgagee who deals with basket cases.
Edwin
I love basket case properties (repossessions, ex-squats, probate sales, short leases, renovation projects, etc, which means I sometimes have to pay cash or deal with niche lenders at least until the property has been brought up to mainstream criteria.
The end of fix options aren't always made clear by lenders. Some are very transparent about it and have excellent information readily available online. TMW and Paragon for example. Others have follow on products but don't have easily accessible information available. Then there are others that don't have anything. Brokers have a tendancy to be more interested in commission today rather than the position they leave the client in in a few years time.
Like several others on here I have close to 20 properties. However, I'm at least a decade younger than some and have only been a landlord consistently since 1998.
Jo
You've got the wrong end of the stick! You're viewed as a poor prospect. If the labour party starts compulsory purchase your properties could be virtually worthless.
Wow! Rude even by your standards. It's usually much later in the day before your self control slips to that degree.
I take it you're jealous that a mere woman has been somewhat more successful in life than you.
'' Mere woman '' don't think so, I wouldn't want to argue with you on a dark night
WAKE UP!
JUMP FOR A BETTER LANDING,
BEFORE THE FINAL SHOVE,
IT IS A CERTAINTY...
SELL SELL SELL
I would like to refer you to a report from WHICH - What's happening to the cost of renting?
They report that since 2019 38% of landlords have sold up.
If WHICH are starting to finally notice surely the likes of Martin Lewis will soon follow and maybe bring the concerns of landlords to the attention of the government!
Maybe!!
Jo, you need to be realistic. Labour may push LLs to sell properties at a lower than market rates. They will be on a crusade to provide social housing, whatever it takes. We have all known from 2016 that S24 was to be abolished and we would only get credit of 20%. I started to sell properties and reduce the capital on my mortgages. We have to be aware of the market and politics all the time. We have had warnings all along and there are more warnings for the future. As Robert says horses for courses. We all have to decide what risks we are willing to take, whether we will to keep borrowing 75% of the value of existing properties and keep buying more or be satisfied with 10 to 12 properties and keep them updated and still get sufficient income to enjoy life. I have always believed in interest only mortgages. But last 5 to 6 years have started to pay capital on some properties, including my residential property. I hope to pay off some smaller mortgages as the fixed rates end at the end of the year. TMW is happy to re-mortgage both these loans. These are the most expensive loans, I have at 3.84% but going on to 6.84%. All my loans are less than 3%. One of them as low as 1.79%. Rents are increasing by a lot, one of them (rate of 1,79%) from £2,750 to £3,250. I am glad the tenants are leaving. They have been good, but the are now looking for a smaller property, as one of their friends is moving to central London. One of my properties is rented to homeless charity for a heavily reduced rent for the last 6 years. The value of the property is about a £1m. So overall I get a good income and able to reduce the capital for the higher rated mortgages. I have a spreadsheets and which clearly provides forecasts for about 5 years pf rent and expenditure. I wrote a strategy and plans for my portfolio as well. (I was a project manager, when I was working.) This tells me when loans will be paid and when the properties will be sold. It also provides the risks list and their mitigation etc. My leverage or gearing is a lot lower for every property. Overall B2L, is less than 45%. Of course my residential is the most expensive property and has a small mortgage, which will be paid off in about a year.
Jo, by the way I am a woman and I have always worked in a male oriented world and I do not believe I have been overlooked because I have been a woman. There have been exceptions, but not many. Business acumen works well in my male oriented family.
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