Mortgage experts appearing before a committee of MPs have given an especially gloomy forecast for the buy to let sector in the short term.
The experts told the Treasury Select Committee that landlords will face a stark choice between increasing rents further to try to break even or selling up because they cannot cover mortgage costs following the latest Bank of England base rate rise.
Ray Boulger, the highly-respected senior technical director at broker John Charcol, said: “What we’re seeing now is criteria changes and we’re finding situations where clients are not able to proceed with the amount they originally planned to borrow because of criteria changes. It’s not all about rate, it’s rate and criteria, particularly stress test rates, they’ve been changed as a result of rates going up.”
He continued: “When you factor in the other impact of energy price increases and cost of living increases that can have a significant impact on what people can borrow. If you need a mortgage and you need a loan-to-value [mortgage] anything above 50 or 60 peer cent, with the current stress rates it’s going to be very difficult.
“And the knock-on effect of that, combined with some existing landlords selling because of the more onerous tax regime and other regulatory requirements and higher mortgage rates I think is going to have a quite serious impact on the availability of rental property over the course of the next year or two.”
Charles Roe, director of mortgages at UK Finance - the trade body for mortgage lenders - told the committee how the disastrous mini-Budget in September had led to mortgage lenders withdrawing products to re-price them upwards.
“Products were available. But lenders were also dealing with a large number of phone calls and requests that came in from borrowers who were concerned about their finances, would they be able to re-mortgage.
“But throughout that period, lenders were offering follow-on products to those borrowers that came to the end of a fixed-rate product.”
“We’re seeing the markets return to much more stability over the course of the last two to three weeks. As a result of that, swap rates [key to determining mortgage interest rates] have come down and in turn lenders are reducing their mortgage rates.
“When the yield on long-term gilts, so the yield on five-year gilts, goes up, the swap curve goes up, and the cost of hedging a five-year fixed-rate mortgage goes up.”
Chris Rhodes, chief finance officer at Nationwide Building Society, commented to MPs: “It’s marginally profitable for new buy-to-let investors if not loss making to take on board a new property, so I think there are potentially implications there in the medium term for the sustainability of the buy to let market.”
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Better kick the Renters Reform Bill into the long grass again and forget about raising CGT or MPs might find the PRS disappearing in front of their eyes. I just hope someone in government stands up at some point and says, "Hey guys, we really need these 4.4m properties in the PRS otherwise we up a large creek without even a boat. I think we should try and incentivise landlords to stay invested, in fact buy more properties, so we dont have people sleeping in doorways on every high street in Britain. What do you think?"
Matthew for PM
Total common sense but that term shouldn't be used when discussing Government.....alas, I fear your wish regarding CGT is all but a wish as I feel they look at it as a weapon to tie Landlords in who then have no choice buy adhere to their new legislation to control us.
Excellent comment from Matthew.
As I've posted elsewhere though, I think a large part of the government's complacency about the serious damage they continue to do more and more of to the PRS is due to their belief that the "Build to Rent" sector will steadily replace the majority of our existing BTL-type properties so its safe to put us out of business and we don't really matter.
Furthermore, it seems to me a certainty that one way or another many of the MPs & ministers involved in damaging the PRS are probably also connected - directly or indirectly - to, and personally benefiting from, Build-to-rent or support from the companies behind it all.
Plus, finally, they obviously firmly believe they'll gain votes & popularity from large numbers of uninformed and/or politically fixated tenants - who don't realise the harm they are doing to their own best interests.
Incidentally, a lot of government "policy" doesn't seem to involve any original thought or proper investigation of the implications and consequences, e.g. BoE rate setting often seems to be led by the Feds in the USA (but blamed on Russia & the war in Ukraine and made to look like some sort of science with logic in it) and "green" stuff is very much European led and again fudged to appear logical in various obscure and dishonest ways, often linked to the ubiquitous and normally unquestioned religion of Climate Change that its mandatory for all politicians to compete with each other for credential in.
I agree GW. They have created a world for us if we buy we’re dammed if we sell we’re dammed. Let’s just hope Matthew does become PM!
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