Buy-to-let deals vanish in mortgage market chaos

Landlords to face a choice of raising rents or selling up say experts as interest rates rises hit profits

LENDERS pulled a record number of buy-to-let mortgage deals overnight as landlords face having to sell up as rates increase.

More than 500 deals vanished from the market on Tuesday night, according to analysts at Moneyfacts. This is more than double the previous record from April 2020, at the start of the Covid lockdowns.

Average rates for five-year buy-to-let fixed deals rose by 0.04 percentage points overnight on Tuesday, from 5.22pc to 5.26pc. These prices have recently shot up: at the start of the month, the average rate for a five-year fix was 3.25pc.

Rising rates could force landlords to either sell or lift rents. Half of landlords rely on mortgages and those remortgaging have already seen profits eroded.

Angus Stewart, of Property Master, a broker, said there would be “increased pressure” on landlords as higher rates drive down the profitability of buy-tolets. He added: “Landlords’ costs will be going up, so you could be in a situation where someone has been on a low interest rate and the cost of their mortgage could easily double.

“I think the challenge is that many tenants won’t be able to afford a rent increase and landlords will not want to evict people for the sake of it.

“We’re going to get some landlords choosing to leave the market because they can’t remortgage at the rent they currently receive, so we will get continued growth in the portfolio landlord sector as a result.”

Jeni Browne, of Mortgages for Business, another broker, said: “Lenders are taking stock while the current turbulence in the market settles. While twoand five-year ‘swap rates’ continue to rise, I expect mortgage rates to continue to rise as well.”

New figures showed that landlords will be pushed into the red if mortgage rates continue to rise.

An investor with an average £222,000 property faces annual profits falling 72pc if they remortgaged in the past month, according to Hamptons estate agency. The data showed the average buy-to-let rate with a 25pc deposit climbed from 1.79pc to 3.51pc in the 12 months to August. This added more than £2,890 to annual mortgage bills for an average property.

Assuming the landlord earnt a 6pc yield and paid higher rate tax, their annual profits would fall from £3,198 last year to £884, a 72pc drop.

This would fall to £212 a year if landlords were charged last week’s 0.5 percentage point increase in the Bank Rate.

If the Bank Rate reaches 3pc before the end of the year, as analysts predict, the average landlord taking out a new loan would make a £797 annual loss.

The National Residential Landlords Association (NRLA) said that most investors would not need to act due to

‘We’re going to get landlords leaving the market because they can’t remortgage at the rent they currently receive’

rising rates. However, those whose mortgage terms are coming to an end soon should seek out a new fix before rates rise even higher.

An NRLA spokesman said: “The withdrawal of buy-to-let deals over the last 24 hours is uncomfortably reminiscent of the credit crunch more than a decade ago when the overwhelming majority of products vanished overnight.

“Unfortunately, however, because of the Government’s decision to withdraw finance costs relief from private landlords, the impact of rate hikes will be felt far more directly than they once were by landlords and renters alike.”

It comes as hundreds of residential mortgage deals were also pulled by lenders. Moneyfacts said more than 900 deals vanished from the market overnight and that since last Friday, when Kwasi Kwarteng unveiled his minibudget, 1,300 deals have been removed.