Buy-to-let mortgage rates are reduced and can come back at much higher interest

Homeowners in need of new fixed mortgages may have a hard time finding them as a host of major lenders closed deals following a dramatic drop in the value of the pound this week.

There are also fears that loans will return to the market at much higher interest rates, with figures seen by This is Money suggesting an increase of almost one per cent in available five-year solutions in the last week.

This is expected to prompt landlords to increase rents to continue making a profit.

Mortgage chaos: Lenders are withdrawing loans on buy-to-let space following controversial government announcement as well as owner-occupier deals

Nearly 40 lenders, including big banks like Halifax and Santander, as well as regional building societies and buy-to-let specialists, have taken homeowners mortgages off the market as they reassess their prices and bolster their own funding sources, and experts say more. . will do the same.

It was sparked by a controversial mini-budget introduced by Chancellor Kwasi Kwarteng, who spooked financial markets by promising £45bn of unfunded tax cuts and a cap on energy bills that could cost £100bn.

The pound has gained about 7 percent against the dollar since dipping to a record low below $1.04 on Monday.

The base rate, currently at 2.25 percent after rising 0.5 percent last week, is now forecast to rise to 6 percent next year, which would mean a massive increase in interest rates charged. for mortgages.

The move has also caused lenders to take hundreds of homeowners mortgages off the market, creating problems for those who need to re-mortgage or buy a new home.

Mortgage lenders are expected to launch new products for homeowners and homeowners alike, but not until financial markets begin to stabilize.

A specialty lender was ready to reintroduce buy-to-let products to the market at rates of about 6 percent, a broker said.

Rent increases: Landlords may decide to increase rents if their mortgage interest costs increase

Rent increases: Landlords may decide to increase rents if their mortgage interest costs increase

In August, average rates on a 75 percent loan-to-value buy-to-let mortgage was 3.51 percent according to the Hamptons real estate agent.

“I suspect that at these rates it will be very difficult for homeowners where the returns are lower,” the broker said. “They will probably be looking to increase rents shortly.”

Rates on the remaining buy-to-let mortgages have increased significantly in the past week, following the base rate increase and mini-budget.

The data provided to This is Money by the Defaqto financial information service show that the average interest rate of a five-year fixed product increased by 0.94% between September 22 and 30, from 5.28% to 6.22%.

This applies to all loan-to-value tranches and covers mortgages for both sole proprietorships and corporations.

However, the increase in two-year fixed offers was less dramatic, going from 4.99% to 5.16%.

Demand for two-year fixes is limited right now because many investors anticipate that interest rates may remain high when that period comes to an end and want to lock in longer to protect themselves from further hikes.

Interest rate increases on typical buy-to-let mortgages
Date Average rate (all fixed lengths) Average rate (two-year fixed) Average rate (five-year fixed)
September 22 5.15% 4.99% 5.28%
September 30th 5.51% 5.16% 6.22%
Source: Default

Angus Stewart, chief executive of buy-to-let mortgage broker Property Master, said “most” of the lenders he worked with had retired their homeowners mortgages, with “more to come in the coming days.”

Worryingly, other brokers told This is Money that some specialized buy-to-let lenders were withdrawing mortgage offers that had already been agreed upon due to the new uncertainty.

This has not been the case in the homeowners market, where brokers have reported that lenders are honoring previously offered rates for those already in the mortgage application process.

The fear now is that we will see many landlords exit the market, which will result in a reduced supply of privately rented property, further increasing the pressure on rents.

Angus Stewart, Mortgage Broker

“Lenders have retired their fixed rates and are offering buy-to-let customers a variable rate if they still want to continue,” said one.

“Others are giving brokers a two-week window to get an offer stage application,” they continued, “after this time, fixed-rate offers will not be honored.”

Stewart continued: ‘We are seeing buy-to-let mortgage products be withdrawn from the market at an unprecedented level.

“This is extremely worrying for the sector. We are facing reduced options in the buy-to-let market, which in turn will have a greater impact on the rising cost of mortgages.

“The fear now is that we will see many landlords opt out of the market and therefore result in a reduced supply of privately rented property that will further increase pressure on rents.”

Rental growth hit a record 11.5% in the year to May 2022, according to Hamptons, but has since slowed to 7.4%. The average UK property rents for £1,165 per month.

Rising: Hamptons research shows rental growth peaked in May 2022

Rising: Hamptons research shows rental growth peaked in May 2022

With the base rate tipped to rise further, Stewart’s advice to homeowners was to secure a new fixed-rate mortgage as soon as possible once offers came back on the market, protecting them against future interest rate increases.

Experts have also suggested that rising mortgage rates could prompt homeowners to exit the market in significant amounts, especially as the Bank of England base rate is set to continue moving higher.

The Hamptons real estate agent has said many will face higher expenses when they remortgage.

Between August 2021 and August 2022, the median mortgage rate on a typical 75 percent loan-to-value buy-to-let mortgage increased from 1.79 percent to 3.51 percent, and that was before the last increase of the base rate and mini- The budget caused the rates to skyrocket even more.

Based on the figures above, the average landlord buying a £222,000 buy-to-let property in 2021 would have seen their annual interest-only mortgage payments nearly double from £3,010 to £5,903 if they had remortgaged last month.

If last week’s 0.5 percent base rate increase to 2.25 percent were to be fully passed, Hamptons said, this would increase payments to £6,743 for an investor remortgaging this month.

As a result, the net annual gain after costs and taxes realized by a higher-rate tax-paying investor, earning an average return of 6.1 per cent, could fall from £3,198 in August 2021 to £212. sterling at the new base rate, 93 percent less. percent, due to higher rates when remortgaging.

About half of homeowners finance their buy-to-let property purchases with a mortgage.

Owners’ organization presents its rescue plan to Chancellor

Letter: The NRLA wrote to Chancellor Kwasi Kwarteng to outline its plan to support the buy-to-let sector and tenants.

Letter: The NRLA wrote to Chancellor Kwasi Kwarteng to outline its plan to support the buy-to-let sector and tenants.

In response to the events of the last week, the industry body, the National Home Owners Association, has proposed a ‘cost of living plan’ for the sector, which it has detailed in a letter to the Chancellor.

He said his plan would help renters pay rent and prevent landlords from selling, ensuring there are enough houses to rent for those who need them.

The proposals include unfreezing housing benefit rates, expanding access to emergency housing support to those who do not receive benefits,

He also advocated removing the £400 Energy Bill Support Scheme payment, which is in the form of a series of discounts on energy bills, and instead paying it directly to each household in one go for them to use. to increase the cost of living.

Finally, he said that to encourage homeowners to stay in the sector, the Government must reverse the decision to restrict mortgage interest relief for homeowners and end the additional 3 per cent stamp duty on the purchase of homes to let. .

Ben Beadle, executive director of the National Association of Residential Owners, said: ‘Both homeowners and renters are struggling with the cost of living crisis.

“We need a package that supports both the prevention of rent arrears and the maintenance of leases.”

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