The issues facing landlords, and the knock-on effect on renters, were discussed at the meeting which explored the current state of the mortgage market.
At the meeting, Ray Boulger, senior technical director at broker John Charcol, warned that the recent mortgage mayhem could have “a serious impact on the availability of rental property in the next year or two.”
In a one-off topical session, MPs questioned mortgage industry representatives about how the mortgage market is working, and the fallout from Kwasi Kwarteng’s disastrous mini Budget in September.
Charles Roe, director of mortgages at UK Finance, told the committee how the mini Budget had led to mortgage lenders withdrawing products from sale in order to re-price them.
Boulger explained how landlords coming off two or five-year fixes since the mini Budget in September faced going from an interest rate of about two per cent to around six per cent. With most landlords paying buy-to-let mortgages on an interest-only basis, this means many landlords faced monthly payments going up by 200 per cent, compared to a rise of about 50 per cent for owner occupiers with repayment mortgages.
Stress test safety margins
The fallout from the mini Budget means that stress tests could become a major headache for landlords, according to the experts speaking at the Committee.
“The stress test is a big issue for landlords, especially in London and the South East where yields are low anyway. Many landlords will only be able to borrow at 50 per cent loan-to-value (LTV),” said Boulger, “Landlords needing to borrow more than 50 per cent of a property’s value will find it very difficult.”
Boulger said that prior to the mini Budget, lenders were carrying out stress tests on landlords at interest rates of 6.75 per cent or seven per cent, but now stress testing was taking place at 8 per cent. He said this criteria change was making it more difficult for landlords to refinance.
“It will impact renters’ ability to find property and also the rent they will have to pay,” he said. “This will be a major challenge over the next year or two.”
Loss-making buy-to-let
Chris Rhodes, chief finance officer at Nationwide Building Society, was also at the Treasury Committee meeting and backed up Boulger’s view. He said: “Buy-to-let will be loss-making for most landlords buying now. Landlords coming off fixed rates of about two per cent will now have to pay about five per cent.”
Boulger’s and Rhodes’ views about the buy-to-let mortgage market are echoed in the experience that mortgage brokers are having when they talk to clients.
Chris Sykes, technical director at brokerage Private Finance, said: “We are starting to see examples of our landlord clients who cannot remortgage their buy-to-let property unless doing a product transfer with their existing lender due to significant changes in the buy-to-let market and higher rate environment.
“The market has certainly become tough for landlords, and many will find their business models are not viable in this high-rate environment with tougher legislations. Landlords also have to pay tax on their rental income if a rental property is owned in their personal name, meaning landlords will have to increase rents just to cover their mortgage payments.”
