Landlords pay off millions in mortgage debt to slash interest bills

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Landlords are paying off thousands and thousands of kilos in mortgage debt in a bid to cut back rising curiosity payments.

Over the previous 9 months, buy-to-let buyers have paid down round £363m of mortgage balances, new evaluation exhibits, as they attempt to minimise the influence of upper borrowing prices.

This comes as many landlords face the prospect of better month-to-month payments as soon as their fixed-rate offers expire.

The present common price for a two-year fixed-rate buy-to-let mortgage is 6.28pc, in line with knowledge firm Moneyfacts, which is greater than double the two.92pc price on the identical deal in October 2021.

This improve has meant the annual value of taking out a typical £150,000 interest-only buy-to-let mortgage has jumped from £4,380 to £9,420 over the interval.

Knowledge from UK Finance exhibits that the overall quantity of excellent buy-to-let debt shrank by £1.2bn between February and August this yr.

Round two-thirds (69pc) of this was linked to landlords promoting properties, whereas 31pc was resulting from buy-to-let buyers paying down debt, in line with evaluation by property agent Hamptons.

This can be a marked shift after excellent buy-to-let debt rose repeatedly since UK Finance began recording knowledge in 2013. Over the last decade, it rose 84pc to hit £305bn by February 2023.

Jack Tutton, director at SJ Mortgages, stated he lately encountered one landlord who was eager to cut back their mortgage legal responsibility by a six-figure sum.

He stated: “They might be saving a big quantity of curiosity given the rate of interest that their mortgage is shifting on to.”

The pattern is extra commonplace amongst landlords who’ve a portfolio of buy-to-lets relatively than particular person landlords, Mr Tutton stated.

“Another choice that landlords are contemplating is restructuring their portfolio to deliver the mortgage to worth (LTV) of the portfolio to a good degree relatively than being geared extremely on explicit properties and decrease on others,” he added.

Separate knowledge from UK Finance exhibits how landlords have been steadily lowering the scale of their loans in response to rate of interest rises.

Between the beginning of 2021 and spring 2023, the share of buy-to-let mortgages with excessive loan-to-value ratios has shrunk considerably, whereas the share with decrease LTVs has swelled.

The share of excellent buy-to-let loans with LTVs between 70pc and 80pc dropped from 17.8pc to fifteen.1pc, whereas these with LTVs of lower than 40pc leapt from 15.4pc to 19.4pc.

This implies landlords are paying down elements of their largest loans or promoting properties which have significantly excessive debt prices.

Angus Stewart, chief government at on-line buy-to-let dealer Property Grasp, stated: “The important thing concern right here is one in every of affordability. That’s the place the problem is for everyone.”

Landlords could also be paying down their debt as a result of they are going to in any other case fail stress exams in the event that they wish to remortgage with one other lender, stated Mr Stewart.

Lenders stress take a look at buyers based mostly on the ratio of rental revenue to their mortgage curiosity funds.

Mr Stewart stated: “Affordability guidelines are clearly making it rather more troublesome for individuals who wish to remortgage a 75pc buy-to-let mortgage except they will put the lease up. That’s the place the squeeze is.”

Gavin Richardson, managing director at Mortgages for Enterprise, a buy-to-let dealer, stated some buyers are additionally growing the scale of their deposits once they buy for a similar causes.

He stated: “We’re seeing circumstances the place they’re including an additional £5,000 or £10,000 to make the deal work and get a greater price.”

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