What impact did the 'mini' Budget have on the BTL market?

This article is part of
Guide to the buy-to-let market

What impact did the 'mini' Budget have on the BTL market?
Markets tumbled into chaos after former prime minister Liz Truss and former chancellor Kwasi Kwarteng's "mini" Budget announcements. (Stefan Rousseau – WPA Pool/Getty Images))

The "mini" Budget passed in September was disastrous for the mortgage market, including buy-to-let landlords. 

Because of the resulting chaos in financial markets, many lenders initially withdrew from the market due to the high level of uncertainty.

At the time, there were initial concerns that the rise in rates immediately following the "mini" Budget meant that the BTL market was doomed.

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Karen Noye, a mortgage expert at Quilter, says after the "mini" Budget the mortgage market became incredibly turbulent, with lenders increasing rates on both residential and BTL mortgages rapidly with very little notice, and some even withdrawing temporarily from the lending market.

“Many landlords are on interest-only mortgages and therefore they started to worry about the affordability of their mortgage deals with interest rates set to skyrocket. Ultimately, these higher mortgage costs have resulted in a smaller profit margin for landlords,” Noye adds.

Luke Thompson, a financial adviser at PAB Wealth, says: “The 'mini' Budget effectively stopped most landlords from purchasing properties. Since the 'mini' Budget I have only had one new mortgage application for a BTL landlord. Rather than an average of two to three applications a month as a minimum prior to that."

Swap rates jumped dramatically after the "mini" Budget, which meant the cost of borrowing increased significantly and in certain product areas, notably two-year fixes, it became extremely difficult, even impossible, for lenders to price accurately.

This is why a large number of products were pulled from the market. 

The 'Truss premium'

Steve Cox, chief commercial officer at Fleet Mortgages, says landlords who needed to refinance at that time would have found a market very different to the one they had previously mortgaged in, with rates much higher. 

When lenders started returning to the market they took a very defensive stance, beginning with high rates that have since been reduced. 

They took a number of months to remove the 'Truss premium' on their pricing, by which time interest rates had been raised to account for soaring  inflation. 

As rates have risen, the biggest challenge remains borrower affordability, that is, meeting the rental stress-test affordability criteria of lenders when rates are higher, Cox says.

He adds: “It’s why you might have seen more lenders offering products with lower rates but higher fees, in order to help borrowers get the loans they require at the current affordability rates. 

“We’ve also seen a greater number of tracker/discount products that provide options to landlord borrowers over the short-term if they feel that fixed rates will fall further in the future.”

Increased stress-rate testing has meant that landlords need high rental values to achieve the same loan amounts.

In any case, landlords are far worse off than they were at this time last year and the current environment for landlords is the bleakest in recent memory.