Telegraph Money has been highlighting the plight of buy-to-let investors who have mortgages from lenders that are no longer in business. Many of these mortgages are at uncompetitive rates and the borrowers are at risk of being stuck with them for life, thanks to much stricter lending rules being brought in by the Bank of England.
Elsewhere on this site we’ve discussed the impact of these rules, but this is a new light on a possibly unintended – and certainly undesirable – effect of the stringent new lending regime which the Bank has imposed.
To be fair, the Bank has clearly said that the new regulations should not be imposed on borrowers with existing mortgages who only want to switch to a new deal and don’t want to increase the size of their loan.
Unfortunately, lenders are already making it clear that they don’t want to take on borrowers who can’t meet the new lending criteria, even if they are only looking for a remortgage of their existing borrowing.
This could mean that thousands of borrowers can’t get off the high rates that they are on, when getting off these rates could mitigate the effect of the higher taxes that there are also having to bear on their buy-to-let income.
Telegraph Money spoke to Nationwide, who are the second-biggest buy-to-let lender. Nationwide told them that it isn’t accepting remortgage business from other lenders unless the loan meets the new, more stringent regulations put in place by the Bank of England. It has increased its threshold for the amount that landlords need to have in income. They are now going to need to be getting 145% of their mortgage costs in rent. For years, this percentage was 125%.
Lloyds is the biggest buy-to-let lender and as yet it is remaining tight-lipped over whether borrowers who are seeking a remortgage out of a higher interest rate from another lender, will be allowed to apply under the previous criteria. Apparently, Lloyds is monitoring the market and keeping its policy under review so that it can ensure that borrowers have enough protection.
Luckily, the buy-to-let mortgage market is a diverse one as some of the landlords involved in M9 lettings can testify. Some of the smaller lenders appear to be having a rethink about their lending policies. Barclays and Yorkshire building society are both reviewing their attitude towards people who are remortgaging – until recently they would have allowed these mortgages through on the previous terms.
Simon Checkley, from Private Finance, a firm of mortgage brokers, is reported as saying that the Bank of England has actually allowed lenders to accept customers who want to remortgage from other firms. He’s hoping that lenders will take up this opportunity.
The buy-to-let borrowers who are in the worst position are those with loans from mortgage companies that are no longer in the mortgage market. These companies include Cheltenham and Gloucester and Mortgage Express. These customers cannot get a new deal with their existing lender and if larger lenders are put off lending to them by the Bank of England restrictions, these borrowers are stuck with the loans they’ve got. The real problems are tending to occur when borrowers who took out a mortgage on a fixed-rate deal get to the end of the fixed-rate term and are transferred by the lender to a standard variable rate. Many of them will find that they are paying well in excess of 5%. This is much higher than the rates on offer for borrowers who can meet the new, stricter criteria for lending.
In effect, these people are therefore mortgage prisoners. So is there any good news at all on the buy to let mortgage front? Well yes there is, actually.
One of the specialist lenders, Together, has cut its rates on buy-to-let mortgages so they are now below 7% on loan-to-value ratios of up to 65%. They’ve also announced a new fixed-rate five-year buy-to-let mortgage and upped the maximum amount they will lend to £500,000.
They pride themselves on not using the “computer says no” approach to landlords that is so common among other lenders. They say that a big part of their success in marketing buy-to-let mortgages has been that they acknowledge that no two borrowers are the same.
So when it comes to mortgages in the buy to let market, there’s good news and bad news – but when was that ever not true?