The buy-to-let market is once again under the spotlight. According to new research from buy-to-let specialist lender Mortgages for Business, carried out on behalf of the Daily Mail, some buy-to-let investors are being forced to accept variable rates as high as 9.5% as a result of failing affordability tests for remortgages.

Others are selling up because they can no longer afford their loans. In mid-February, YourMoney.com reported that more than a third (38%) of current properties which have been put up for auction come from buy-to-let investors who are looking to exit the market quickly.

Meanwhile, recent calls by city mayors for rent freezes and eviction bans are putting even more pressure on smaller landlords in the sector.

‘A critical situation for landlords’

Gavin Richardson, managing director of Mortgages for Business said: “It’s a critical situation for small landlords at the moment. They are worried about Section 21 reform and EPC regulations and tax. On top of that, they’re having to worry about higher mortgage rates. They’re right to be worried.

“We’re seeing landlords coming off rates of 3.5% and being unable to remortgage because, according to the lender’s stress test, their loan is no longer affordable. Unable to secure a new deal and with nowhere else to go their loans are reverting to the lenders standard variable rate, which average about 7.5%.

“In fact, in the worst-case scenario, they are moving to their lender’s standard variable rate at rates as high as 9.5%.  Their only other options are to pay a socking-great fee to secure a more reasonable interest rate, which can cost them tens of thousands of pounds. Or they can sell up and go home.”

Computer says ‘no’

Mortgage for Business noted that some lenders are offering landlord borrowers product transfers without asking them to pass a new stress test, others allow borrowers to remortgage back to them at reduced fees, and a few are actively looking at ways to help. However, as Richardson noted, this is ‘some lenders’, not all.

He concluded: “The money markets are proving tricky for lenders to navigate and many are sticking with ‘computer says no’. Having a good broker has never been important.”