Mortgage costs may force landlords to withdraw

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by Gill Montia

A recent report from the Royal Institution of Chartered Surveyors (Rics) warns that rising costs could result in large numbers of landlords withdrawing from the buy-to-let market.

Since the autumn, the costs involved in many buy-to-let mortgages have risen steeply.

Arrangement fees have increased to up to 5% of the loan amount, so that even modest remortgages can cost several thousand pounds.

Interest rates are generally at 7% or above, with rates showing no sign of coming down despite the 0.25% cut in the Bank of England’s base rate, in early December.

For example, Birmingham Midshires is offering customers coming to the end of existing agreements a best rate of 7.04% on a three-year tracker mortgage.

Jeremy Leaf, spokesman for the Rics, describes the situation as “a mess” which is “inevitably going to have an effect on the housing market and the wider economy”.

He believes that the current strong demand for rented property means that “landlords should be getting more choice from the financial markets”.

In addition, tighter lending criteria could mean that some landlords may be unable to finance their rental portfolios.

Only last week Scottish Widows reduced its loan-to-value ratio by 10%, to 70%, for non-professional landlords and Godiva, the buy-to-let subsidiary of Coventry building society, is limiting the number of properties it will finance for one borrower to three.

Tom Entwistle, editor of property website, LandlordZONE, believes many landlords, and most particularly recent entrants, will decide to sell because rents have not kept pace with mortgage costs and the likelihood of gain through capital appreciation has diminished in the short-term.