1 in 3 landlords hit by loan block that could force them to sell up

ONE in three landlords is struggling to remortgage after failing their lender’s affordability test. Some buy-to-let investors are being forced to accept variable rates as high as 9.5 pc as a result. Others are selling up because they can no longer afford their loans.

Mortgage rates rose sharply following last September’s miniBudget. But while rates for homeowners have dipped back, buy-to-let mortgage rates have remained stubbornly high.

analysis by broker Mortgages for Business shows a third of buy-to-let mortgage applications are now being rejected.

those denied a remortgage can do one of three things. they can move to their lender’s standard variable rate (SVR), which currently range from around 5.5 pc to as high as 9.5 pc. alternatively, they can pay a hefty fee to secure a more reasonable interest rate, which can cost them tens of thousands of pounds. Or they can sell up.

For many landlords, it’s the final straw after years of being squeezed by higher taxes.

Letting agents and auction houses have reported a rise in the number of private landlords selling their properties. Online auction house My auction says 40 pc of its lots are buy-to-let homes, up from 13 pc this time last year. Stuart Collar-Brown, of My auction, says: ‘Interest rate rises have sped up the exodus of buy-to-let investors.’

Gavin Richardson, managing director of Mortgages for Business, says: ‘It’s a critical situation. We’re seeing landlords coming off rates of 3.5 pc and being unable to remortgage because, according to the lender’s stress test, their loan is no longer affordable.’

Most landlords will face a jump in their monthly payments when their deal expires. to work out if the mortgage is affordable, most lenders insist the rent collected covers 145 pc of the buy-to-let mortgage.

So, on a monthly mortgage bill of £1,030, the borrower’s rental income would need to be £1,500. Since February 2022, average five-year fixed rates have risen from 3.16 pc to 5.85 pc, according to data firm Moneyfacts. For a landlord with an interest-only mortgage of £200,000, that is a monthly increase of £450.

Many landlords are being forced to hike rents in response. a survey by lender Landbay found seven in ten landlords plan to increase rents if their mortgage payments rise.

Sebastian Murphy, of brokerage JLM Mortgage Network, says: ‘the only landlords not being impacted are those who have a few years left to run on their current fixed-rate deal. they are praying rates will have come down by the time they need to remortgage.’

analysis for Money Mail by Mortgages for Business reveals just how dire the situation is.

a landlord charging £ 1,200 a month rent with a mortgage of £225,000 coming off a fixed rate of 3.99 pc would now be offered a remortgage of £180,893, based on a rate of 5.49 pc, falling £44,000 short of the loan amount they need to remortgage.

Ata rate of 5.99 pc the shortfall rises even higher to £59,207; at 6.29 pc it is £67,114. to be accepted for a remortgage of £225,000, the landlord would have to increase the rent they charge by nearly £300 to £1,495.

at a time when, according to Rightmove, the average national rent outside London has reached a record high of £1,172, brokers say such a huge hike would price out too many.

Some larger buy-to-let lenders, such as BM Solutions and the Mortgage Works, often offer borrowers a new deal without asking them to pass a new stress test.

this is because, although their monthly payment will rise, it’s more affordable than moving the customer on to an SVR. But other lenders make landlords reapply as if they were a new customer.

those who fail the stress tests are moving on to their lender’s higher SVR and waiting for fixed rates to fall before they grab a new deal, says Mr Murphy.

‘Landlords face huge capital gains tax bills if they sell, so instead they’re passing some of their higher borrowing costs on to tenants,’ he adds.

Over the last month, a number of lenders have offered a lower-rate option in exchange for a fee as high as 7 pc of the mortgage balance. For some borrowers, that could mean using cash earmarked for further buy-tolet investments to pay the high fees — or lower their mortgage balance — to pass the stress test.

‘this is the sort of conundrum landlords are now facing,’ Mr Murphy explains.

Vanessa Warwick’s buy-to-let mortgage payments increased from £450 to £1,100 last year. Cofounder of online landlord forum Property tribes, Vanessa cannot currently remortgage from her lender’s SVR of 5.75 pc because she does not charge enough rent to satisfy its lending criteria. Vanessa, 60, charges her tenants £1,100 a month for a house in Basingstoke, Hampshire. ‘When the mortgage payments went up, I spoke to my letting agent, who told me the going rate for the area is £1,700,’ she says. ‘I’ve issued the tenants with an increase to £1,350, which I think is fair,’ she adds. ‘But if they cannot afford to pay, I’ll have to sell.’ Even if the tenants accept the increase, Vanessa will still be unable to pass her lender’s checks for a remortgage, so will have to look for a new deal.

‘I’ve been a landlord since 1992 and this is the toughest environment I’ve experienced,’ she says. ‘ It’s no longer an attractive investment for new landlords.’