Landlords striving to take advantage of the stamp duty changes announced by finance minister Rishi Sunak have been blocked from mortgages as banks restrict buy-to-let loans to those with large deposits only.
Property investors, e.g. residential buyers, have noticed the market for small-deposit mortgages shrinking in recent months as the future of the property market causes uncertainty for lenders. These loans are believed to be higher risk than those made to customers with larger deposits.
According to Aaron Strutt of mortgage broker Trinity Financial, Viva Homeloans is currently the only lender offering buy-to-let loans to customers with a 15pc deposit.
As one of the most popular locations for property investment, London will be exempt from these loans.
Strutt warned that the cost of taking these loans was much higher than large-deposit deals. Vida charges an interest rate of 4.79pc to customers with a 15pc deposit for its two-year fixed deal. Rival lender Birmingham Midshires, however, has a rate of 1.22pc for landlords who are able to raise a 40pc deposit.
“Some lenders have started offering lower deposit buy-to-let mortgages but they are charging a premium for the rates,” Mr Strutt said.
“The banks and building societies do not want to go through the hassle of lending to landlords when there is the chance they will need to repossess the property later down the line, so they have strict acceptance policies especially for those with smaller deposits.”
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The rental market is also facing other issues, such as the Government extension of the rental eviction ban until September 2020. Landlords are now required to give six months’ notice if they wish to reclaim possession of their property.
After being extended on two occasions, there is uncertainty as to whether the Government will extend the deadline for a third time.
Mortgage broker Chris Sykes of Private Finance said this uncertainty was discouraging new landlords from entering the sector. He warned that as restrictions are lifted, there is a possibility of a wave of evictions occurring.
“The upcoming eviction of tenants en masse in the midst of global pandemic will see a great deal of negative publicity,” he said. “Ultimately we believe this will put off new investors to the market, even with the potential savings from the stamp duty holiday.”
Mr Sykes said another hurdle was that lenders offering small-deposit loans have often withdrawn deals with little notice after being overwhelmed with applications. In other cases rates have been increased to a level that makes them unattractive to customers, he said.
“As with the 90pc residential lending market we expect lenders will offer [buy-to-let] mortgages for a short time and be inundated with applications and withdraw them relatively quickly,” he said.
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