Buy-to-let mortgage rates are expected to fall in 2017 for ordinary landlords with one or two properties, but get more expensive for professionals with larger portfolios, according to a leading mortgage broker.
With a raft of tax and regulation changes set to be introduced, John Charcol is predicting a buy-to-let mortgage rate war in the so-called ‘vanilla’ end of the market, as high street lenders have little alternative but to drop rates for smaller scale – widely considered to be lower-risk – landlords with lots of equity.
However, the broker warns that fierce competition for private landlords with small portfolios is unlikely to extend to professionals. In fact, it has been suggested that buy-to-let landlords with more than three buy-to-lets may even see the rates on offer from high street lenders start to rise.
Simon Collins, of John Charcol, told the press: “I definitely believe that we may well see a bit more competition in the very vanilla section of the buy-to-let market.
“Whether this will lead to higher pricing in the complex end of the market is really yet to be seen but the whole buy-to-let market is undergoing a real sea change.”
According to Collins, the widening gulf on rates will emerge partly as a result of tougher lending rules forced on lenders by the Bank of England.
Various lenders have announced greater rental stress rate for buy-to-let landlords as regulators seek to cool what it perceives to be aggressive buy-to-let lending practices.
Many lenders have raised their income coverage ratio to 145% and applied a 5.5% stress rate to comply with new Prudential Regulation Authority (PRA) standards to help ensure borrowers can repay their mortgages if interest rates increase.