Remortgaging landlords hit with high rates after failing affordability tests

Remortgaging landlords hit with high rates after failing affordability tests

16:55 PM, 2nd March 2023, About A year ago

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Up to one in three buy-to-let landlords are struggling to remortgage after failing their lender’s affordability test, a BTL mortgage broker has revealed.

The research from Mortgages for Business shows that some buy-to-let investors are being forced to accept variable rates as high as 9.5% because they have failed remortgaging affordability.

The broker also reveals that some landlords are selling up because they can no longer afford their loans.

‘Critical situation for small landlords’

The firm’s managing director, Gavin Richardson, said: “It’s a critical situation for small landlords at the moment – they are worried about Section 21 reform, EPC regulations and tax.

“On top of that, they’re having to worry about higher mortgage rates.

“They’re right to be worried.”

He added: “We’re seeing landlords coming off rates of 3.5% 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 average about 7.5%.”

‘Landlords are being hit with higher remortgage rates’

But some landlords are being hit with higher remortgage rates, as Mr Richardson explains: “In fact, in the worst-case scenario, they are moving to their lender’s standard variable rate at rates as high as 9.5%.

“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.”

Faced with a hike in rates

Mortgages for Business says that a landlord charging £1,200 a month in rent with a mortgage of £225,000 and who is coming off a fixed rate of 3.99% will be faced with a hike in rates.

The broker says that the landlord would now be offered a remortgage of £180,893, based on a rate of 5.49%, falling £44,000 short of the loan amount they need to remortgage.

At a rate of 5.99%, the shortfall rises even higher to £59,207; at 6.29% it is £67,114.

And 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, the broker says.

Lenders do offer landlord borrowers product transfers

Some lenders do offer landlord borrowers product transfers, which is a new deal without asking them to pass a new stress test.

Other lenders will allow borrowers to remortgage back to them at reduced fees, while a few are actively looking at ways to help.

Mr Richardson said: “But not all of them will.

“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 more important.”

For more information see this previous article on how to deal with interest rate rises.

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