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AtW
20th October 2015, 18:15
Buy-to-let in figures: exactly how interest rate rises will hit returns

What would happen to your buy-to-let returns if Bank Rate rose to 1pc, 1.5pc and 2.5pc, respectively? These charts reveal the outcome

More than one in ten private landlords could be left with unaffordable mortgages if interest rates rise sharply, data published today shows.

In a scenario where Bank Rate increases to 2.5pc, this would leave more than 13pc of landlords with "insufficient" rental income to cover their mortgage, according to a report from Moody's, the ratings agency.

The Bank of England has maintained its key rate at a historic-low 0.5pc since 2009, keeping borrowing cheap and arguably fuelling a borrowing spree among Britain's booming buy-to-let sector.

Landlords now owe £201bn in mortgage debt, according to data from industry body the Council of Mortgage Lenders, while buy-to-let loans comprise 16pc of all property lending. :eek :eek :eek

But this latest analysis of an £18.2bn sample mortgage loans shows interest rate rises could leave hundreds of thousands of landlords falling short of a key measure affordability.

Moody's used the typical method for calculating affordability that is used by lenders before they approve a mortgage.

The so-called "interest coverage ratio" demands that the gross rental income a landlord receives each year should be 125pc of their annual mortgage costs.

Because most buy-to-let mortgages are interest-only, this means the rent needs to completely cover the mortgage interest, plus a 25pc "buffer". Capital repayments are not required to be covered. (AtW's comment: WTF, capital repayment is optional???!!!)

Now, 1pc of landlords already fail to meet this key criterion, according to Moody's.

Source: Buy-to-let in figures: exactly how interest rate rises will hit returns - Telegraph (http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11941232/Buy-to-let-in-figures-exactly-how-interest-rate-rises-will-hit-returns.html)

Got new 6 month fixed term contract signed with landlord, so will be waiting this one out :eyes

LondonManc
20th October 2015, 18:22
(AtW's comment: WTF, capital repayment is optional???!!!)

Remember the good old endowment mortgages? Same principle but without the endowment. In theory low risk because they can move the property on to clear the capital owed but sounds risky, leaving the BTL bod with no collateral at the end of the loan period if they've not got the money on one side for 20 years from now to clear it off.

AtW
20th October 2015, 18:26
How the fook it's "buy" to let if they don't even repay capital? :mad

LondonManc
20th October 2015, 18:31
How the fook it's "buy" to let if they don't even repay capital? :mad

Endowment mortgages didn't eat into capital. We had one when we bought our first house in 97. Switched it to a "normal" mortgage in 2000.

MarillionFan
20th October 2015, 19:05
Of course capital repayment is optional, how naive are you? You just sell the damn thing at the end and have all that filthy rent you earned in the bank.

diseasex
20th October 2015, 19:17
Yep, I'm keep hearing how properties will rise constantly in London etc on forums, from random people. I wouldn't buy now for that reason, I've seen couple of crashes in my life and this seem like a sign to sell out... I might be wrong but 2 bed are starting from 300k in zone2 and if you went wrong, and your property lost -30% of value and rates risen , you would lose a fortune...

Manchester and other, cheaper areas are much less risky IMO. HMO is another option with higher potential return to cover any rise of rates.

PurpleGorilla
20th October 2015, 19:53
Sadly interest rates aren't going up any time soon. Indeed I would be suprised if they went up before 2020.

AtW
20th October 2015, 21:07
Sadly interest rates aren't going up any time soon. Indeed I would be suprised if they went up before 2020.

Rates will go up AFTER it's done by FRS

shaunbhoy
20th October 2015, 21:10
More than one in ten private landlords could be left with unaffordable mortgages if interest rates rise sharply

Quite possibly true, and that is why they will not be allowed to rise sharply

HTH

:banana: