Mortgage stress tests will be ‘the death of BTL’

With just a handful of BTL mortgages available currently, buy to let landlords will struggle to find fixed-rate mortgages, finance experts are telling media outlets.

And one mortgage adviser says that as stress test rates remain high, these will be ‘the death of buy to let’.

FT Advisor says that mortgage brokers are surprised with lenders increasing their stress test levels for BTL investors in response to the turbulent government bond market.

This followed Chancellor Kwasi Kwarteng’s mini-Budget that led to hundreds of mortgage products being pulled from the sector.

While some lenders have been returning products this week to the market, mortgage brokers say there’s no respite in sight just yet.

Minimum stress rate of 8.49% as an interim measure

Indeed, The Mortgage Works has unveiled plans for a minimum stress rate of 8.49% as an interim measure on all new BTL applicants – that’s up from 5% previously.

Other High Street lenders that have also increased their stress test rates include TSB and NatWest.

The stress test is a way for a lender to check the mortgage borrower’s ability to repay their mortgage at a given interest rate.

Landlords also need to appreciate that lenders are also looking to install a ‘buffer’ in the rental income demand – this is usually at 125% of 145%.

The rate could be the ‘death of buy to let’

But it is the prospect of a higher stress test that will affect buy to let mortgage availability, and Imran Hussein of Harmony Financial Services in Nottingham, said that unless the rate comes down in the coming weeks, it could be the ‘death of buy to let’.

Another mortgage broker told the outlet that landlords in London have a bleak outlook with high rents and lower yields which will affect their stress test application.

The Daily Telegraph also highlights that two-year fixed-rate mortgages have all but disappeared from the sector with the buy to let mortgage broker, Mortgages for Business, saying on Wednesday that there were just two BTL mortgages available with them for a landlord buying through a company.

However, there are 67 two-year fixed rate deals available for a landlord who is buying as an individual.

The number of fixed-rate deals has dropped by 70%, experts say.

Becoming more difficult to get a fixed-rate BTL mortgage

A spokeswoman for Mortgages for Business told the newspaper that it is becoming more difficult to get a fixed-rate BTL mortgage.

Landlords buying in a limited company have 165 mortgage options, while others buying as individuals have 129 deals, currently.

Property Master has also told the Daily Telegraph that the cheapest BTL deal currently available is a 3.29% mortgage – that’s three times higher than last year’s cheapest deal which was being charged at 0.99%.

The firm’s Angus Stewart also confirmed that some mortgage lenders are now setting their stress test rate at 8.49% to ensure landlords can afford to meet repayments.