Landlords Face Ruin as Buy to Let Mortgage Rates Soar

House prices are still rising despite the cost of fixed-rate buy-to-let mortgages hitting the highest rate since the last financial crisis 14 years ago.

Despite Chancellor Jeremy Hunt’s intervention, banks are still increasing mortgage rates, and buy to let landlords are sometimes stuck with monthly repayments rising by several hundred pounds.

Their stark choice is passing the cost on to financially hard-pressed tenants, swallowing the increase or selling in a falling market to protect their investment.

And the danger is real as Bank of England governor Andrew Bailey has already warned interest rates will have to ratchet up again.

Mortgage monitor Moneyfacts lists 1,296 landlord loans on offer, with the best two-year fixed rate buy-to-let mortgage coming in at 5.04 per cent at 75 per cent loan-to-value on a home worth £250,000.

Record asking prices from sellers

A three-year fix has the best rate of 5.99 per cent, while a five-year fix is slightly cheaper at 5.16 per cent.

The cheapest rate is from Nationwide Building Society’s buy-to-let property arm, The Mortgage Works - and also comes with a hefty three per cent arrangement fee.

Meanwhile, online housing portal Rightmove says house prices have reached a new record average asking price - but the window of opportunity will only last for a while.

Data for October shows sellers have increased their prices by 0.9 per cent, taking the average asking price to £371,158.

But the property advertiser cautions that the current economic uncertainty could filter through as a fall in values.

Fewer buyers as demand dry up

Other lenders and commentators predict the market will fall.

Britain’s biggest mortgage lender, The Halifax, revealed prices fell slightly in September, while the Royal Institution of Chartered Surveyors (RICS) warns prices will fall next year.

The latest data from RICS shows inquiries by new buyers dropped by a fifth last month.

Besides worries over money, the market is dipping because first-time buyer demand is drying up.

Rightmove indicates the number of first-time buyers has fallen by a fifth compared to last year but is still higher than in 2019.

Rising house prices won’t last forever

A separate survey by London estate agents Benham & Reeve confirms buyers and sellers are concerned about the economic turmoil triggered by former Chancellor Kwasi Kwarteng’s mini-budget - but consider the market reaction too exaggerated, leaving them undeterred about moving home.

Most (84 per cent) said the economic upheaval of the past two weeks would lead them to keep their plans the same.

Benham and Reeves director Marc von Grundherr said: “This is a rather level-headed approach by home buyers and sellers who appreciate that we simply can’t expect house prices to soar by double-digit rates of growth forever and therefore, we are likely to see current hot market conditions cool a tad next year.

“They simply aren’t buying into the wider doom and gloom surrounding the market, having seen themselves the resilience of bricks and mortar in tough economic times, but also how quickly the market can bounce back following a period of instability.

“As a result, many remain undeterred to buy or sell, and as they continue to do so, any fears of a property market crash will be firmly laid to rest.”

Slashing stamp duty won’t help landlords

The government is betting slashing stamp duty will stoke the market through a traditionally quiet period over Christmas and the New Year.

Every buyer has a £250,000 duty-free threshold - double the standard nil rate threshold of £125,000.

First-time buyers have an even better deal - paying no stamp duty on the first £425,000 of a home’s value.

Unfortunately, neither of these deals applies to landlords or developers.