11:29 AM, 3rd November 2022, About 2 years ago 3
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Not only will rents rise but tenants will find it more difficult to find homes over the next year or two as landlords will be struggling with higher mortgage rates, MPs have been told.
At the Commons Treasury Committee, a range of mortgage experts told MPs about the state of the market and what will happen with higher interest rates.
One of those giving evidence was Ray Boulger, from John Charcol, a mortgage broker, and he said that landlords will become reluctant to invest in buy to let properties and this will lead to a ‘serious impact’ on the availability of properties to rent over the next year or two.
He told MPs in the one-off topical session that the situation was acute in the south-east and in London.
The Treasury hearing follows a sharp rise in fixed-rate mortgage rates over the past year and a big rise in the aftermath of former Chancellor Kwasi Kwarteng’s mini-Budget in September.
Mr Boulger also said that the BTL market would see more stress than in other sectors of the mortgage market with some landlords finding it more difficult to secure a mortgage of more than 50% of the property’s value.
He explained that for landlords who are coming off two- or five-year fixe deals after September’s mini-budget face the prospect of seeing the interest rate on products rise from around 2%, to around 6%.
He added that most landlords paying interest-only buy to let mortgages have seen their monthly repayments rocket by up to 200% – compared with 50% for owner occupiers who have repayment mortgages.
Mr Boulger also explained that lenders had been conducting stress tests on landlords at interest rates of 6.75% but were now doing so at 8%.
He says that this change in criteria is making it more difficult for a landlord to find finance.
It is this issue that will affect a renter’s ability to find a home, he told MPs, but will also affect the rent they will have to pay.
The director of mortgages at UK Finance, Charles Rowe, also gave evidence and revealed how the mini-Budget had led to many mortgage products being withdrawn by lenders so they could re-price them.
Nationwide’s chief finance officer, Chris Rhodes, told the hearing that the housing market outlook was ‘very uncertain’.
The building society had, earlier this week, revealed that house prices in the UK fell in October by 0.9% when compared with September. That’s the first monthly fall they have recorded in 15 months.
He told MPs that for most landlords buying property now that ‘buy to let will be loss-making’ because landlords who are coming off 2% fixed rate deals, will now be paying 5%.
The technical director at the brokers Private Finance, Chris Sykes, told the hearing that there have been ‘significant changes’ in the BTL market and a higher rate environment.
He explained that the market has become tougher for landlords, and many will find that their business model is not viable in a high-rate environment and tougher legislation.
Mr Sykes also warned that with landlords having to pay tax on rental income – if it is owned in their personal name – they will need to put up rents to cover their mortgage payments.
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Beaver
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Sign Up14:18 PM, 3rd November 2022, About 2 years ago
Ray Boulger is correct. The effect of recent government policy, i.e. not allowing finance costs to be deducted against income, has only really affected the smaller investor earning a middle income as everybody else was able to incorporate. The effect of this policy is that the smaller investor who may well have been holding rents down to encourage longer-term tenants has now had to put the rent up. Some of these landlords will have offloaded some of their buy-to-let portfolio which will have been picked up by the larger incorporated landlords who are used to dealing with tenants and have a better idea of what the market will stand. The effect of this is inflationary and it means that tenants will be indirectly negatively impacted in the short term by both tax policy and by the Bank of England as it tries to control inflation.
So the bottom line is the BOE is trying to control inflation but the effect on the rental market is inflationary.
Karen
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Sign Up17:57 PM, 3rd November 2022, About 2 years ago
He should have said the government needs to reverse the Osborn tax on landlords, that would help both landlords and tenants. Like any business, if your costs go up you have to increase your sales price or you go bust.
Karen
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Sign Up17:58 PM, 3rd November 2022, About 2 years ago
He should have said the government needs to reverse the Osborn tax on landlords, that would help both landlords and tenants. Like any business, if your costs go up you have to increase your sales price or you go bust.