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Buy to let mortgage lenders are creaming off the best borrowers and leaving the rest without any real hope of raising loans.
The reality of the market is more lenders are swooping like sharks in a feeding frenzy on landlords with the best credit ratings and highest rental yields, although they would have property investors believe they are helping swell the number of properties in their portfolios.
The reality is unless a landlord has a property generating a top of the market yield, few can afford the best rates and deals offered by lenders.
Three lenders are offering 80% loan to value deals to entice landlords – Leeds Building Society, The Mortgage Works and Aldermore Bank.
Each requires 125% rent cover as a condition of borrowing. The following example is based on The Mortgage Works rent cover pay rate of 6.39%.
A £200,000 home with an 80% loan-to-value mortgage gives a potential maximum borrowing of £160,000.
At a rate of 6.39%, the annual interest-only repayment is £10,224, or £852 a month. The property needs to generate a minimum rent of £1,065 a month to meet the 125% rent cover requirement – a yield equal to the interest rate.
Few homes in this price band have the size or finish to command such a sizeable rent.
Now look at the latest rental yield map of England and Wales and the only places generating more than a 6.39% average yield are the North West and Yorkshire/Humberside, which effectively bars a great swathe of landlords from applying for the mortgage.
The lesson for landlords is not to believe the buy to let hype emanating from lenders, mortgage brokers and builders. They are not your friends, but predators cherry picking the best customers to boost their loan books and profits.
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