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Antony Antoniou – Luxury Property Expert

One third of BTL Landlords Failing Lender Stress-Tests

One third of BTL Landlords Failing Lender Stress-Tests

The Struggles of Landlords: Buy-to-Let Market Challenges and Increasing Pressure

In the dynamic world of real estate investment, landlords are grappling with a range of challenges that are reshaping the landscape of the buy-to-let market. Recent developments have raised concerns, with many landlords now facing an uphill battle to remortgage their properties and sustain their investments. As a result, a significant number of property owners are being pushed to the brink, with reports indicating that one in three landlords could be forced to sell their properties due to affordability constraints imposed by lenders.

**The Affordability Test Dilemma**

The heart of the issue lies in the affordability tests that lenders have been employing to assess landlords’ eligibility for remortgaging. In a surprising twist, nearly a third of buy-to-let mortgage applications are being rejected due to these stringent tests. As a consequence, many landlords are unable to secure favorable fixed-rate deals and are left with unpalatable options.

Some investors are resorting to accepting variable interest rates as high as 9.5 per cent, significantly impacting their profit margins. Others are facing the harsh reality of having to sell their properties as they are no longer able to manage their loans effectively. This scenario is compounded by the fact that even though rates for homeowners have seen a dip, buy-to-let mortgage rates remain stubbornly high, causing further distress to landlords.

**The Changing Landscape**

Letting agents and auction houses have reported a noticeable uptick in the number of private landlords choosing to sell their properties. Online auction house My Auction, for instance, has seen a staggering increase in the proportion of buy-to-let homes being auctioned. This shift underscores the mounting pressure on landlords as they grapple with higher taxes, tighter lending criteria, and rising interest rates.

Gavin Richardson, Managing Director of Mortgages for Business, aptly captures the gravity of the situation: “It’s a critical situation. 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.”

**The Remortgaging Conundrum**

For landlords who fail the affordability tests, a set of challenging choices emerges. They can transition to their lender’s standard variable rate (SVR), which often comes with rates ranging from approximately 5.5 per cent to as high as 9.5 per cent. Alternatively, they can opt to pay a substantial fee to secure a more reasonable interest rate, incurring potentially significant costs. Lastly, the option of selling their properties becomes increasingly attractive as landlords grapple with the pressure of unaffordable loans.

**Implications for Landlords and the Market**

The ripple effects of these challenges are far-reaching. Many landlords find themselves compelled to increase rents to cover their escalating mortgage payments. A survey by lender Landbay revealed that seven in ten landlords plan to raise rents if their mortgage payments continue to rise. This, in turn, puts additional strain on tenants already navigating a competitive rental market.

Sebastian Murphy of JLM Mortgage Network points out that only those landlords with a few years left on their current fixed-rate deals seem to be shielded from the turmoil. They are banking on the hope that rates will decrease by the time they need to remortgage.

**Navigating Uncertainty**

The scenario painted by these developments is undoubtedly complex and challenging for landlords. Affordability tests, rising interest rates, and stringent lending criteria have formed a perfect storm that many landlords are struggling to weather. With some facing the decision to sell their properties, the buy-to-let market is undergoing a transformation that will likely impact both landlords and tenants alike.

As the market continues to evolve, stakeholders will need to carefully evaluate their options, consider the financial implications, and adapt their strategies to thrive in this changing environment. The future of the buy-to-let market hangs in the balance, as both seasoned and prospective landlords weigh the potential returns against the mounting challenges.

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