No more cheap debt for landlords as buy-to-let rates rise

The threat of a rate rise by the Bank of England has spooked lenders into increasing prices and pulling deals for landlords sooner than expected.

In the past five days alone, banks and building societies have already pushed up prices of loans, in some cases by more than one percentage point.

Landlords have enjoyed months of price cuts as banks and building societies competed for business in the wake of the pandemic, with the cheapest rate falling below 1pc.

But Angus Stewart, of buy-to-let broker Property Master, warned the “tide was turning”, adding that banks were increasingly hiking their rates and withdrawing mortgages from the market.

This week the Nottingham Building Society pushed up the cost of some of its buy-to-let mortgages by more than one percentage point, with a two-year fix rising from 1.55pc to 2.74pc and a five-year fix jumping from 2pc to 3.06pc.

Godiva Mortgages, the buy-to-let arm of Coventry Building Society and a big player in the sector, last week increased the rates on all its landlord deals, with one going up by 0.36 percentage points to 2.85pc.

There are concerns that borrowers, including owner occupiers, face the biggest surge in mortgage costs since the financial crisis, as the Bank prepares to rein in soaring inflation.

Landlords have warned that cheap debt had acted as the final buffer against costly tax and regulatory changes in recent years to make the sums still up. Although these rate changes appear small, they are significant, and property investors have warned that a sharp swing in interest rates would be the "final straw".

“While from time-to-time lenders do adjust rates to fit their lending appetite, what we are seeing now looks different and probably reflects rising rates in the market even ahead of any move by the Bank of England,” said Mr Stewart.

Chris Sykes, of Private Finance, a mortgage broker, said: “The buy-to-let mortgage market was the last to reduce rates significantly, as these lenders are often more conservative.

“We expect to see larger percentage rate rises in this space due to this more conservative lending nature in the coming weeks and months.”

It is feared investors will need to pass on additional mortgage costs to tenants in the form of higher rents, or be forced to exit the market altogether, exacerbating a rental shortage which has already pushed up prices.