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Stay calm, plea to landlords as buy-to-let loan deals disappear

Dilemma: Hannah Pike has sleepless nights over interest rates

Landlords are being warned to prepare for rising mortgage rates that will force many to sell – or create financial hardship for their tenants with rent increases.

The hikes could squeeze hundreds of thousands of homeowners who invested in rental properties for income in old age.

Last week, more than 1,000 mortgage transactions were taken off the market, according to rate watchdog Moneyfacts. Of the roughly 850 buy-to-let deals still available, owners now have to pay an average mortgage rate of 5.26% for a five-year fixed rate transaction. A month ago, such an agreement averaged 3.25%.

I gotta sell or play, I can weather the storm

Hannah Pike fears she may have to sell her two rental properties next year if interest rates continue to soar.

The 42-year-old mother-of-two is due to remortgage a £462,000 three-bedroom semi-detached property in Wokingham, Berkshire, and a £380,000 two-bedroom terraced house in the town of Thame, England Oxfordshire. years.

Dilemma: Hannah Pike has sleepless nights over interest rates

Dilemma: Hannah Pike has sleepless nights over interest rates

Hannah, a part-time personal assistant from Wokingham, says: ‘Something has to give and the turbulence in the mortgage market is giving me sleepless nights. I either have to cut and run – or bet I can weather the storm. But the latter means higher rents for tenants.

She adds: “I want to keep the properties so that one day they will be passed on to my children. But if I do that it will mean raising the rent for the Wokingham property from £1,500 to maybe £2,000 a month – and for the Thame one from £1,100 to £1,350.

“It’s not about making money with my tenants, it’s about keeping your head above water and not going into debt.”

On a £300,000 mortgage, that could mean an extra £500 in monthly payments. Mortgage rates were raised after the Bank of England raised the base rate to contain inflation.

Last December, the base rate was only 0.1%, but it is now at 2.25%. Financial markets predict that it could reach 6% by spring.

The National Residential Landlords Association says now is not the time to panic. Its director of policy and campaigns, Chris Norris, says: “Keep calm. No one is sure what will happen, but take the opportunity to think about your future plans.

“Those with three months or less left on a fixed-rate deal could start looking now, as lenders can sign up new owners for a future deal that starts in a few months.”

Rates for buy-to-let mortgages tend to be higher because they are considered higher risk.

About 90% of buy-to-let loans are interest-only, meaning you repay the interest on your loan, not the original capital borrowed.

Moneyfacts points out that although the average for mortgage deals is over 5%, there are still competitive deals – although more are being pulled every day.

Among the current best buys is a two-year 4.39% fixed-rate buy-to-lease offer with NatWest for up to 60% loan-to-value with no arrangement fees.

For a five-year fixed deal, NatWest is again offering a rate of 3.89% for a maximum mortgage of 60% and an arrangement sensation of £995.

Meanwhile, the TSB is offering a two-year buy-to-let tracker mortgage that charges 1.89 percentage points above the base rate for a loan to 60% value, also with an arrangement fee. from £995.

Lee Grandin, owner of buy-tolet broker Landlord Mortgages, agrees now is not the time to panic.

He says: ‘Remember there is always a shortage of properties available to rent in major cities, such as London. So if mortgage rates go up, you might want to consider raising the rent rather than just selling.

However, not all landlords will be able to pass on rate increases, as tenants also face rising costs and may not be able to pay more. “Homeowners need to remember that they’ve been spoiled with low rates for years,” adds Grandin.

Another major concern for rental property owners is the risk of a real estate crash – fueled in part by landlords and landlords being forced to sell because they can no longer pay their mortgages and other bills .

House prices for the 12 months to July rose 15.5% and averaged £292,000, according to the Office for National Statistics.

Many fear that this level of growth will be unsustainable and will end in a crash – commentators expect house prices to fall by 10-20% over the next two years.

Since borrowers who buy to let tend to opt for interest-only mortgages, they rely on capital appreciation as part of their investment plan. If the value drops, they could be left out.

Homeowners are already feeling the pinch with a host of tough new measures put in place to improve safety and environmental standards.

It started last year with new electrical safety rules, where every five years an Electrical Installation Condition Report (EICR) must be completed – checking wiring and sockets.

Such certificates can cost £1,000 as electricians have to go through the whole house to give it a clean bill of health. If rewiring is needed, repairs can cost thousands of pounds.

New Energy Performance Certificates (EPC) legislation is also being introduced, meaning that from 2025 rental properties must have a minimum EPC of ‘C’. Today, only four out of ten households reach this required level.

Indeed, older properties – many of which are rented out – tend not to have well-insulated walls or roofs and have drafty windows. The cost of rectifying many Victorian properties can run into the tens of thousands of pounds.

There are also fears that a tenant reform bill, due to be rolled out as early as next year, could remove a clause from ‘Section 21’ on no-fault evictions.

This means that even if a landlord has a good reason for asking a tenant to leave – such as a failure to pay rent – ​​they may face the potentially costly process of having to drag the matter to court.

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