One in three property investors are having difficulties to remortgage after failing their lender’s affordability test, revealed the latest study undertaken by Mortgages for Business.
The research revealed that some landlords are being forced to accept variable rates as high as 9.5% as a result of failing affordability tests for remortgaging, while others are selling their properties due to not being able to afford their loans.
According to the study, a landlord charging £1,200 a month rent with a mortgage of £225,000 coming off a fixed rate of 3.99% would now be offered a remortgage of £180,893, based on a rate of 5.49% — falling £44,000 short of the loan amount they need to remortgage.
The shortfall rises even more for higher rates, going up to over £67,000 for a 6.29% rate loan.
To be accepted for a remortgage of £225,000, the landlord would have to increase the rent they charge by nearly £300 to £1,495.
Gavin Richardson, managing director at Mortgages for Business (pictured above), said: “It's a critical situation for small landlords at the moment — they are worried about Section 21 reform and EPC regulations and tax, and on top of that, they’re having to worry about higher mortgage rates.
“We're seeing landlords coming off rates of 3.5% and being unable to remortgage because, according to the lender's stress test, their loan is no longer affordable.
“Unable to secure a new deal and with nowhere else to go their loans are reverting to the lenders standard variable rate, which average about 7.5% — in fact, in the worst case scenario, they are moving to their lender's standard variable rate at rates as high as 9.5%.
“The money markets are proving tricky for lenders to navigate and many are sticking with ‘computer says no’, so having a good broker has never been important.”
