While the Bank of England increasing their base rate, from 0.25% to 0.5%, at the start of November meant many people knew their mortgage payments were going to rise, it seems as though some buy to let lenders were adjusting their rates in advance of the official announcement. At the end of October and start of November, it was shown that the average two-year fixed buy to let rate had reached a level of 2.8%. At the beginning of October, this rate was classed as 2.79%, so there was an increase over the course of the month.
The exact same thing happened with respect to the five year fixed rate. At the beginning of October, these rates were classed as 3.43% and by the start of November, they had reached 3.44%. This is far from a major increase but when it comes to mortgage payments, any increase can cause problems. There is also the fact that landlords have a lot to contend with. The price of one individual property may be such that a 0.01% increase has a big impact on monthly payments, and of course, landlords have been squeezed in a variety of different ways in recent times. At some point, a notable amount of landlords will stand up and say enough is enough, if it is not already happening.
A stricter approach is being taken to buy to let mortgages
There has also been another big factor in buy to let mortgages of late with a stricter approach to underwriting criteria. This is being applied to landlords who hold a minimum of four properties. According to Moneyfacts, over the course of October, there was a 13% reduction in the range of mortgage products available to landlords who met this criterion. If it becomes harder for landlords to obtain a suitable mortgage, or it becomes more expensive, there will be a knock-on effect. Landlords will have to pass the costs on to the tenants or they may decide that it is not worth their while investing in the market any more.
There are many costs for commercial lenders
You can see why lenders taking a more cautious approach to mortgages would look to increase their rates but a more practical reason may be at hand for the increases. These changes will have created additional work for lenders to do behind the scenes, and this work will have likely incurred costs. It may be that some lenders have decided to recoup these costs by passing them on to investors and landlords in the shape of their mortgages. While the base rate is a crucial factor when it comes to the mortgage people pay, you have to remember that lenders make commercial decisions. This means that there are many reasons as to why people have to pay more for their mortgage.
Given the demand for rental property is going to continue, there are still opportunities for landlords, but there is a need for landlords to be sure about what they are doing. Anyone looking for guidance about how increases in buy to let mortgages have affected them or just need some general buy to let advice, will find that Regent Property is always happy to discuss matters, so come in and see us or make an appointment.