Rate rise will have biggest impact on re-financing landlords
For landlords, remortgage dates could matter more than the increase in rates that will follow interest rates rising to 4%, according to Tara Evans, chief executive of Mercantile Trust.
She said the first rise in over three years could have a big impact on landlords, particularly those about to remortgage.
She said: “For most landlords already on a fixed rate, a 0.25% increase doesn’t necessarily have an immediate effect on monthly payments. The most significant movement has taken place over a longer period of time, as lenders adjust fixed-rate pricing ahead of the decision.
“In our conversations with landlords and brokers, we expect them to be less worried about the announcement itself and more about what replaces finance when an existing deal ends.”
She said that landlords need to review their borrowing before replacing it. “Landlords coming to the end of a two-year fixed-rate could find the difference from the announcement manageable. That might be different for someone coming off a five-year deal, agreed all the way back in 2021. They could be moving from a rate below 3% to one far above that. This could have a big impact on cash flow and on the rental cover a lender would expect,” she said.
Reassessing affordability
“While some landlords could simply refinance, others coming off that longer-term fixed rate may have to consider rent pricing and whether the timing of the remortgage is manageable alongside the rest of their portfolio.”
She also warned that affordability assessments could be affected by higher rates. “Buy-to-let borrowing is typically reviewed against a stressed interest rate, meaning the increase in rates could reduce the amount rental income can support,” she said.
That could have a particular impact on landlords with limited company structures, non-standard construction properties, or those with historical credit issues,” she said.
“Not every lender is identical, with each having slightly different lending criteria. The question here is about what evidence a lender can consider when reviewing an application. This includes rental figures, property condition, landlord circumstances, and whether the information can be assessed against its own merits instead of strict criteria.”
The rate increase comes alongside other confirmed measures like income tax changes in April and higher energy efficiency standards for privately rented homes, which will also impact landlord decisions.
“Each of these changes could impact a landlord differently, but have a knock-on effect regarding decisions around refinancing, improvement works, and ownership structure,” she said.
