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Buy-to-let mortgage rates and fees spike favouring equity rich investors

  • 05/10/2022
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Buy-to-let mortgage rates and fees spike favouring equity rich investors
Buy-to-let mortgages are now so expensive that only landlords with at least 50 per cent equity have any chance of being able to afford deals, according to brokers.


Lenders have been returning to the market after pulling scores of products in the wake of the chancellor’s mini-Budget, but deals are considerably pricier.

BM Solutions has today released a tranche of new two and five year buy-to-let fixes in which there are no rates below 5.6 per cent and no two-year fixes below six per cent.

And it’s not just rates that have become more costly. Paragon has today released two new five-year fixes with rates of 6.3 per cent and 6.85 per cent, with arrangement fees of five and three per cent respectively.

One broker told Mortgage Solutions an arrangement fee of five per cent is “ridiculous”.

It comes as lenders also hike stress rates, with The Mortgage Works today updating its stress rate to 8.49 per cent.

Lea Karasavvas, managing director at Prolific Mortgage Finance, said: “Lenders are trying to support the market as best they can, but it’s very difficult to price at present with the volatility.

“Very high stress tests that will result in no new business really above 50 per cent LTV, as it simply does not stack up on rental calculations but gives the experienced landlord with equity and lowly geared a couple of options.

“In my view, lenders want to be supportive and feel a little compelled to offer something right now to show support, but in reality nothing over 50 per cent will fit or is not attractive enough to borrowers.

“With the rates, the stress tests being applied and large arrangement fees at present, there is support which is great to see, but nothing that will appeal.”

Sebastian Murphy, group director at JLM Mortgages, added: “At present the buy-to-let market has pretty much ground to a halt.

“Even product switches are higher in most cases than the variable rate of the same lender.

“LTV will have to drop massively now for any loan to fit the metrics of any lender.

“However, does any investor really want to pay six to seven per cent? Unlikely.

“We are all hoping that swap rates continue to fall as they have in the last few days, so that pricing can become more competitive.

“It’s going to be a bumpy six months at least for this sector of the market.”


Looking for the exit


If the market stays at the current level, it could lead to a swathe of investors dumping property when it comes to remortgaging.

Karasavvas said: “I think the markets need time to settle, whilst lenders work out how best to price. Options at present whilst welcomed are simply not viable for most borrowers and if sustained will result in a lot of unwanted, unprofitable property being placed on the market and could result in the start of a reduction in property value due to more supply and less demand.”

Lewis Shaw owner of Shaw Financial Services added: “Rates are up into the six per cents and stress rates are crazy.

“I predict a big sell-off of buy-to-let property in the next 12-18 months. Anyone on an interest only loan will have no profit left after paying the mortgage and tax.”

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