Buy-to-let landlords rush for protection against interest rate rises
04-16-2014
Property Club - lettings agents
Gross yields on “vanilla” buy-to-let properties have risen from 5.9pc to 6.4pc over the last quarter. Photo: Alamy
By Nicole Blackmore
Landlords are rushing to remortgage ahead of increases in interest rates in an effort to protect their returns, according to a specialist broker.
Research undertaken by Mortgages for Business shows 65pc of buy-to-let mortgage activity in the first three months of the year was for remortgages rather than property purchases, up from 53pc in the previous quarter.
David Whittaker, managing director of Mortgages for Business, said landlords are keen to lock in record low interest rates before the Bank of England pushes up its Bank Rate. It has held rates at 0.5pc since March 2009.
“The Bank of England will almost certainly raise interest rates before the next general election,” warned Mr Whittaker. “And that will have a sharp effect on anyone caught out in less than twelve months’ time.”
Last month, Mark Carney, the governor of the Bank of England, said rates could rise to between 2.5pc and 3pc in the three years to 2017. The Bank has said it expects rates to remain at this level for some time beyond 2017.
The markets expect Bank Rate will initially rise by 25 basis points to 0.75pc in the early summer of next year and again in the autumn to 1pc.
Mortgages for Business said gross yields have risen on “vanilla” buy-to-let properties to 6.4pc, up from 5.9pc in the last three months of 2013.
But calculations by the Telegraph last week showed some buy-to-let investors could make a monthly loss as early as 2017 if interest rates rise to the levels hinted at by Mr Carney.
Most at risk would be those who have flocked lately into the market, or who have borrowed against their existing buy-to-let portfolio recently, with interest rates at all‑time lows.
There has been a strong resurgence of buy-to-let borrowing in the past 24 months. In the two years between the end of 2011 and the end of 2013, mortgage lending to landlords grew by 44pc, according to the Council of Mortgage Lenders.
The number of property purchases financed by landlord loans rose from 6,200 in 2011 to 9,300 last year.