Mortgage advisers and brokers have told FTAdviser that some clients are paying as much as £800 extra a month on their buy-to-let mortgages, as the market continues to feel the effects of Liz Truss’s “mini”-Budget.
Kent-based mortgage broker, Paul Holland said the higher interest rates seen in the last month have made conversations with clients coming to the end of their fixed-rate term “pretty grim”.
The rental income currently charged on the property is £950, which would leave only £110 after paying the mortgage if the rent remained unchanged.“People with a BTL mortgage that we've dealt with have predominantly opted for a product switch and the rental is still covering the repayments but their profit margin is taking a battering,” Holland said.
One of his clients, with an existing loan amount of £160,000 on an interest only basis, is due to fall out of his fixed rate in June 2023.
The client is currently on a 3.34 per cent 2 year-fixed rate with repayments of £330 per month.
The most competitive option at the moment for the client is 6.24 per cent for a 2 year fixed-rate, which would see the repayments jump to £840, an additional £510 per month.
The rental income currently charged on the property is £950, which would leave only £110 after paying the mortgage if the rent remained unchanged.
Another one of Holland’s clients is due to come to the end of their fixed-rate in April next year.
With a 2.25 per cent fix on the current loan of £240,000, the most competitive rate he is currently able to get with the existing lender (5.79 per cent) would see the client’s repayments shoot up to £1,158 per month from £340 currently.
The rental income on this property is currently £1,250, which would leave only £92 after paying the mortgage.
"Both examples have tenants who are long standing and although they could increase the rent, they are sceptical as they don’t want to upset the apple cart," Holland told FTAdviser.
Holland said new buy-to-let enquiries have "all but died" in the last month.
“To be quite frank, lenders haven't done enough and they seem to be looking after number one rather than their customers.
“Hopefully the next announcement/budget will settle things somewhat and restore some normality to the market."
He added: "The new 'normal' being different than what we've been used to of course."
Data released earlier this week, showed that landlords in the UK have seen an 18 per cent increase in their estimated total rental income in the past year, but interest rate rises look set to eat into these returns.
Whether these higher rates will mean a large-scale exodus from the market remains yet to be seen.
London Money director, Martin Stewart said it will be next year before any trends are visible.
“There is an air of resignation around the buy-to-let world that it is in for a very hard 12 months.
"Even if only 5 per cent of landlords decide to panic-sell that is still nearly 250,000 properties flooding an already fragile market,” Stewart told FTAdviser.
As of November 1, the average fixed-rate on a buy-to-let property across all loan to values now sits at 6.75 per cent according to Moneyfacts.
The central bank hiked the base rate by 0.75 percentage points last week (November 3), to 3 per cent, its biggest single increase in 33 years, but brokers say the hike has already been priced in to products.
Change in buy-to-let interest rates since August
Date | 2 Year Fixed, All LTVs | 2 Year Fixed, Max 85% | 2 Year Fixed, Max 75% | 5 Year Fixed, All LTVs | 5 Year Fixed, Max 85% | 5 Year Fixed, Max 75% |
|
01/08/2022 | 4.04 | 4.98 | 4.04 | 4.49 | 5.67 | 4.54 |
|
01/09/2022 | 4.47 | 5.15 | 4.46 | 4.72 | 5.94 | 4.76 |
|
01/10/2022 | 5.57 | 6.93 | 5.41 | 6.05 | 7.56 | 6.04 |
|
01/11/2022 | 6.75 | 7.68 | 6.69 | 6.72 | 8.28 | 6.82 |
|
Source: Moneyfacts
Lenders have returned to the buy-to-let market since pulling products in October following the mini-Budget, but the amount of choice on offer is yet to return to the level it was at.
As of the beginning of November, there were 1,407 buy-to-let mortgage products available on the market.
This was up from 988 at the beginning of October, but significantly reduced from the 2,075 that were available at the beginning of September before the turmoil began.
jane.matthews@ft.com
