Plan Insurance Blog

Buy-to-let Lenders Repricing Causes Mortgage Logjam

In recent months The Bank of England has increased the interest base rate seven times from 0.1%. The Bank’s monetary policy committee’s decision on Thursday September 22nd to opt for a further 0.5% increase took the rate to 2.25%, the highest it has been since 2008.

This has caused in many lenders to pull products and to be less willing to honour older, lower mortgage offers if they expire. Worryingly, following unrest in the money markets following the Chancellor’s mini-budget that was announced the day after the latest increase, specualation is mounting that a further 2% of rate rises could be on their way.

Many experts believe The Bank of England needs to act in order to steady the value of the pound which has plummeted against a strong dollar in the past few days. A weak pound will increase the cost of imported goods and further exaserbate the rampant inflation, which the rate rises are designed to bring under control.

Data firm Moneyfacts, states that the average 5 year fixed rate mortgage jumped from 3.18% in October 2021 to 4.49% in August of this year. That increase ups repayments on a £250,000 loan by £2,148 a year.

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Buy-to-let lenders new attitude

Gavin Richardson, managing director of the buy-to-let broker Mortgages for Business (MFB) believes a strict attitude from lenders in relation to mortgage offer extensions is now commonplace. As recently as July, 95% of the broker’s offer extension requests were granted. That figures has dropped to 1 in 4 being successful.

Richardson stated, “We have seen the death of mortgage extensions over the past six weeks.” “Lenders no longer have any appetite to provide extensions in a market where interest rates have started to move upwards again so fast.”

With landlords sensing the need to push through remortgages there is also “a huge log-jam” in the conveyancing process. “This is leading to more offers expiring, costing landlords tens of thousands of pounds in some cases,” according to Richardson.

MFB estimate that landlords who are having to take up higher mortgage offers as their original deal expired, will have to pay on average £205.63 more every month. That equates to an extra £12,337 of payments over a 5 year period. Many economists fear that these costs will inevitably feed into higher rental payments and further drive the current inflationary crisis.

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