BTL’s profit margins ‘take a hit’

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Buy-to-let investors are seeing their profit margins take a “big hit” as fixed rates and stress tests remain at a high.

“People with BTL mortgages we’ve dealt with have mostly opted for a product switch and the lease still covers repayments, but their profit margin suffers as a result,” Holland said.

One of his clients, with an existing loan of £160,000 on an interest-only basis, is due to exit his fixed rate in June 2023.

The client currently benefits from a fixed rate of 3.34% over 2 years with repayments of £330 per month.

The most competitive option right now for the customer is 6.24% for a 2 year fixed rate, which would push repayments up to £840, or an additional £510 per month.

The rental income currently charged on the property is £950, which would leave just £110 after paying the mortgage if the rent remained unchanged.

Another of Holland’s clients is expected to come to the end of his fixed rate in April next year.

With a 2.25% correction on the current loan of £240,000, the most competitive rate he is currently able to secure with the existing lender (5.79%) would see the client’s repayments jump to 1 £158 per month compared to £340 currently.

The rental income from this property is currently £1,250 which would leave just £92 after paying the mortgage.

“Both examples have long-term tenants and although they may raise the rent, they are skeptical because they don’t want to upset the apple cart,” Holland told FTAdviser.

Holland said new buy-to-let requests were “nearly dead” over the past month.

“To be quite frank, the lenders haven’t done enough and they seem to be looking after number one rather than their customers.

“Hopefully the next announcement/budget will sort things out somewhat and restore some normalcy to the market.”

He added: “The new ‘normal’ is of course different from what we are used to.”

Data released earlier this week showed landlords in the UK have seen an 18% increase in their estimated total rental income over the past year, but interest rate hikes are expected to eat into those returns.

It remains to be seen whether these higher rates will mean a large-scale exodus from the market.

London Money director Martin Stewart said it will be next year before any trends are visible.

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