"We're seeing landlords coming off rates of 3.5 per cent and being unable to remortgage because, according to the lender's stress test, their loan is no longer affordable"
Research undertaken by the buy-to-let mortgage specialist and carried out on behalf of the Daily Mail found that some buy-to-let investors are being forced to accept variable rates as high as 9.5 per cent as a result of failing affordability tests for remortgages. Others are selling up because they can no longer afford their loans.
Gavin Richardson, managing director of Mortgages for Business, said: “It's a critical situation for small landlords at the moment. They are worried about Section 21 reform and EPC regulations and tax. On top of that, they’re having to worry about higher mortgage rates. They’re right to be worried.
“We're seeing landlords coming off rates of 3.5 per cent and being unable to remortgage because, according to the lender's stress test, their loan is no longer affordable. Unable to secure a new deal and with nowhere else to go their loans are reverting to the lender's standard variable rate, which averages about 7.5 per cent.
"In fact, in the worst case scenario, they are moving to their lender's standard variable rate at rates as high as 9.5 per cent. Their only other options are to pay a socking-great fee to secure a more reasonable interest rate, which can cost them tens of thousands of pounds. Or they can sell up and go home.”
A landlord charging £1,200 a month rent with a mortgage of £225,000 coming off a fixed rate of 3.99 per cent would now be offered a remortgage of £180,893, based on a rate of 5.49 per cent, falling £44,000 short of the loan amount they need to remortgage.
At a rate of 5.99 per cent, the shortfall rises even higher to £59,207; at 6.29 per cent, 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.
Some lenders offer landlord borrowers product transfers, a new deal without asking them to pass a new stress test. Others will allow borrowers to remortgage back to them at reduced fees, while a few are actively looking at ways to help.
“But not all of them will,” concludes Richardson. “The money markets are proving tricky for lenders to navigate and many are sticking with ‘computer says no’. Having a good broker has never been important.”
