The buy-to-let market is the most likely to be negatively affected by rising costs and economic instability as mortgage rates continue to rise, experts say.
Yesterday, The Treasury Committee held a meeting concerning the current state of the mortgage market, exploring the potential impact market turmoil may have on renters, landlords and homeowners.
MPs heard from experts who expressed particular concern regarding the buy-to-let market, following months of economic instability and interest rate hikes.
Ray Bougler (pictured), senior mortgage technical manager at John Charcol, warned: “The buy-to-let market is where we’re likely to see the most stress, rather than the residential market.
“Because pretty much all buy-to-let mortgages are on interest only, if you see an interest rate increase from 2% to 6% […] your monthly repayments are going to increase by 200%.”
And while these statistics may sound worrying for landlords and buy-to-let investors, these rising costs will of course also impact the renter, leading to higher rental rates and therefore less opportunities within the rental market.
“And of course, the impact of that will be on renters”, added Joanna Elson, chief executive at The Money Advice Trust.
Highlighting the importance people place upon having “a roof over their heads”, Elson pointed out that renters will often prioritise rent payments rather than other necessities such as energy bills and even food – suggesting that struggling households could sink further into poverty in the midst of the ongoing cost-of-living crisis.
Their warnings come just months after the mortgage market was sent into unrest following Bank of England base rate hikes and Truss’ controversial ‘mini-budget’.
In the wake of these fiscal events, the market descended into chaos, as many lenders quickly pulled mortgage products from the market in an attempt to reprice items at higher rates.
This resulted in some rates being hiked as high as 6%, putting extreme financial pressure on some households.
Chris Rhodes, chief finance officer at Nationwide, concluded: “Buy-to-let has been hit the hardest.”
“The interest rates on buy-to-let now means that it’s marginally profitable for buy-to-let investors, if not, loss making to take on board a new property.”
He warned: “I think there are potentially implications there in the medium term for the sustainability of the buy-to-let market.”
