Concerning new forecasts indicate that buy-to-let investors face having to pay an extra £6,700 on their mortgage, when new rules on the length of loans are introduced next year.
At present, many landlords opt to take out two-year deals as they are cheaper than long-term loans. However, the Bank of England’s Financial Policy Committee intends to make it harder for landlords to secure short-term loans, after recently being granted more powers by the Government.
Concerns
Many regulators have expressed their concerns over aggressive buy-to-let lending practices at some banks. They feel that a number of investors are simply taking on too much debt and as such, will sink under the pressure of increased interest rates.
As a solution, they want to see more landlords signing up to longer-term, five-year deals, which tend to be higher. This means that borrowers will have to pay more, maybe thousands of pounds, over the life of the loan.
The figure of £6,700 is based on a £150,000 loan at a two-year rate of 1.59%-£199 per month-in comparison to borrowing the same amount at a five-year deal of 2.49%-£311 per month.
This additional £112 per month would mean the borrower has to pay an extra £6,720 over the course of the loan.
Cost of a BTL mortgage set to rise as investors choose longer deals
Hike preparation
Andrew Montlake, of London based mortgage broker Coreco, observed: ‘A lot of landlords won’t qualify for a two-year deal, so they have to prepare themselves for a potential hike in their mortgage payments.’[1]
The crackdown from the Prudential Regulation Authority comes into effect in January 2017 and will involve lenders conducting stress tests to make sure borrowers can repay their mortgage payments should rents rise.
Over the last few months, a number of lenders have increased stress tests for potential borrowers from 125% to 145%. The pressure is already on landlords, following a tough year of legislation changes and it will certainly be interesting to see how they cope.
[1] https://www.landlordtoday.co.uk/breaking-news/2016/11/btl-mortgage-costs-set-to-soar-as-new-stress-tests-push-landlords-into-longer-deals