Buy to Let Mortgages are beginning to show signs reminiscent of the sub prime lending market over the last few weeks with tightening credit criteria, the withdrawal of buy-to-let mortgage products and rising fees.
Tightening of buy-to-let credit criteria
Several buy to let mortgage lenders have changed the minimum rental cover required by raising the minimum rent required to cover a given buy-to-let mortgage repayment, either by raising the cover percentage, increasing the underlying rate or withdrawing the lower cover products. The trend over recent years has been a falling rental income cover requirement, so with buy-to-let lenders reversing this trend, it's a definite sign that some buy-to-let mortgage lenders are taking a more cautious outlook.
Withdrawal of buy-to-let products
Some buy-to-let mortgage lenders have withdrawn their entire range of buy to let mortgage products while many others have simply withdrawn their buy-to-let tracker or variable range. Perhaps buy-to-let mortgage lenders are just taking a breather, giving them time to evaluate the market and perhaps re-launch with re-priced buy-to-let mortgage products, which will more than likely be at a higher rate.
Buy-to-let fees increase and reach new highs
While fee increases are not a new trend, the volume of changes and the size of fees have reached new levels. With the margins to be made on interest turn now becoming minimal, fee income is a key source of revenue for buy-to-let mortgage lenders. While percentage fees are commonplace in the buy-to-let sector, the 5% fee from Paragon sets a new precedent.
The ease of availability, choice of products and cost of buy to let mortgages seem to be taking a battering at the moment, but look hard enough and there are still some very competitive buy-to-let mortgage deals to be found. However, establishing the true cost of any mortgage is a must, with a vast range of high fee low rate combinations currently available.
The outlook may not be all doom and gloom for the buy-to-let landlord, although borrowing costs are rising, yields are beginning to fall and the potential to gain from capital appreciation is declining. If the residential mortgage market sees increasing arrears, repossessions and first time buyers continuing to be priced out of the market, the demand for rented properties will undoubtedly increase.
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