Buy-to-let rates see record rise

The average two-year buy-to-let tracker rate has risen by 0.2 percentage points to reach 2.43 per cent since the rate hike on 2 November, according to Moneyfacts.

It is the largest monthly increase that has ever been seen on Moneyfacts.co.uk records.

Meanwhile, the average two-year fixed rate has undergone the highest monthly rise since April 2015, increasing from 2.89 per cent to 2.93 per cent.

Forecasts of further gloom for landlords followed the rate increase.

Colin Ellis, chief credit officer at Moody’s Investors Service, said there could be a small increase in mortgage arrears.

The rate increase came on top of a raft of recent tax and regulatory changes for the sector, including a 3 per cent surcharge on additional property purchases, tougher underwriting rules for portfolio landlords and the scrapping of mortgage tax relief on buy-to-let properties. 

As rates keep rising on buy-to-let deals, borrowers will need to act fast if they still want to get a low rate.Charlotte Nelson

Charlotte Nelson, finance expert at Moneyfacts.co.uk, described the rate hike and the change in portfolio criteria as a "lethal cocktail" for buy-to-let mortgages.

She said: "The criteria changes for portfolio landlords and the rising fixed and variable tracker rates will start to eat into the returns of landlords, making many consider whether buy-to-let is still the right option for them.

"With rates on the rise, it is important that buy-to-let landlords weigh up their options carefully.

"Given that savings rates remain low, property is still seen as a good option by many and the lure of a higher return will continue to see many potential landlords wanting to dip their toe into the buy-to-let waters. 

"As rates keep rising on buy-to-let deals, borrowers will need to act fast if they still want to get a low rate. Anyone who is unsure should seek the advice of a financial adviser."

Andrew Montlake, director at London-based Coreco Group, said: "There are a number of things coming together which mean landlords are thinking twice about increasing their portfolio or coming into it in the first instance.

"I think it is a tricky time for landlords, and it is borne out by the fact that landlord purchase business has gone down as a lot of people wait and see what the trends are going forward.

"Professional landlords still think there is an opportunity. It is sort of what the point of these changes was - to stop the amateurs getting in."

simon.allin@ft.com