Finance expert and press officer at Moneyfacts.com Rachael Springall released a report yesterday into the re-emergence of Buy-to-let mortgages over the last week or so after being completely decimated in recent months. The financial crisis that the UK (and the world at large) have been experiencing in 2021 and 2022 has had a major impact on mortgages and house purchases in the UK. The Bank of England’s base rate is now at 3% with people expecting it to rise higher before the end of the year.
Buy-To-Let Mortgages Decimated By The Financial Crisis
In a sort of domino effect, money lenders all followed suit and raised their rates too including mortgage lenders. Many lenders completely removed their products from the market and the rest increased their rates from 1,2,3% to 4,5,6 and even 7%. Arguably the mortgage type that took the biggest hit was buy-to-let mortgages. Historically always a good investment and a nice money maker for would-be landlords, buy-to-let loans were generally quite easy to arrange and straight forward as long as the property was expected to earn the borrower enough money in rent and as long as the borrower had enough deposit to invest in the purchase. The market was nicely saturated with competitive BTL products and there were many lenders joining the market.
However, with the recent rate rises, a lot of lenders decided that for the time being, they didn’t have an appetite to lend at all, let alone to landlords whose tenants may struggle to pay their rent in a financial crisis! A large number of BTL lenders removed their products, increased their interest rates to unheard of levels. The ones who did keep lending also did something that is sometimes overlooked when reporting on the financial crisis. Lenders such as TMW and BM solutions, two very well-known specialist BTL lenders, tightened their mortgage affordability. Essentially, they started to demand higher rents, larger deposits, and higher individual income from the landlords applying for the mortgage. We can assume that this is so that the lender can have more reassurance that the landlord can still pay their mortgage, if their tenant can’t afford their rent.
Changes To Buy-To-Let Criteria Stalled Lending
This dramatic change to buy-to-let mortgages meant that we as mortgage advisors saw BTL borrowers who were previously able to borrow large mortgage amounts, being offered much lower than we would have expected. One such instance saw one of our clients who was previously offered a £300,000 mortgage being offered a maximum loan of £145,000 because of the new more stringent criteria. Because of the reduction of product choice and the low-ball offer from the lender, our client was forced to wait until he felt that the BTL market was in a better position for him. And with the recent news of rate reductions and re-introduction of products, that time may soon be upon us!
According to data recorded by moneyfacts, since the start of October 2022 the number of buy-to-let mortgages on the market increased by over 700. Springall says “At the beginning of September, there were over 2,000 fixed and variable buy-to-let mortgages on the market. The following month this dropped by over half to 988. However, as of Friday it showed signs of recovery with 1,769 options now available on the market. A rise in choice could indicate an encouraging sentiment across lenders that appear to be adjusting their ranges to cater to landlords searching for a new deal.”
What Do The Mortgage Advisors Think?
Although this re-introduction of buy-to-let mortgages is definitely a positive step in the right direction, it doesn’t address the biggest issues facing the mortgage market currently. Interest rates and mortgage affordability. Until rates come down to a more manageable level, it won’t make sense for landlords to get a BTL mortgage. Unless they hike their rents up even more and risk losing loyal tenants.
We as mortgage advisors do believe that things are improving, perhaps quicker than most people expected, which is great news. But we are in a period of settlement and correction issues right now. Lenders are getting used to the position of the economy now and are starting to realise that things aren’t as dire as they seemed a couple of months ago. This is obvious by the number of lenders reducing their rates and adding new products. But when it comes to buy-to-lets, there is still a way to go and a lot of changes regarding affordability still need to be looked into.
If you or anyone you know has a buy-to-let mortgage or is considering getting one, give our specialist buy-to-let mortgage advisors a call today to see how we can help.