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Banks shun cash-poor landlords ahead of interest rate rise

Meanwhile investors with bigger deposits have been protected from price increases.

Article originally published by The Telegraph. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Banks are squeezing cash-poor landlords but throwing money at property investors with larger deposits ahead of an anticipated Bank Rate rise next month.

Lenders have backed the buy-to-let sector after months of surging rents, and landlords now have access to the highest number of deals since the financial crisis.

But buy-to-let investors with small deposits, who are viewed by lenders as being riskier borrowers, must pay hundreds of pounds more in mortgage costs compared with those putting more cash up front.

The average rate of a two-year fixed deal for landlords with a 15pc deposit rose by 0.25 percentage points between December and January, up from 5.17pc to 5.42pc, according to analyst Moneyfacts.

A five-year fix on the same terms rose from 5.22pc to 5.52pc. A rise of this size adds £300 in interest each year on a £100,000 mortgage.

Meanwhile, banks have largely protected more affluent landlords with larger cash reserves from rate rises. The average rate of a buy-to-let mortgage requiring a 25pc deposit, and fixed for two years, stayed at 2.91pc between December and January and the average price of a five-year fix with a 25 deposit dropped from 3.22pc to 3.19pc.

These increasing costs come ahead of an anticipated Bank Rate rise next week as the Bank of England fights to contain soaring inflation. Just weeks after the last rate rise, in December, borrowers were paying hundreds more in interest on new fixed-rate mortgages.

There are currently 3,528 buy-to-let mortgages available on the market, the most recorded by Moneyfacts since September 2007 and almost 1,000 more since before the pandemic hit.

Cheap debt has acted as one of the final buffers for landlords against costly tax and regulatory changes in recent years to ensure they can still make a profit on their investment.

Eleanor Williams, of Moneyfacts, said banks and building societies had exercised caution when lending to landlords with smaller deposits, which remained "quite a niche lending area". She added: "They are viewed as higher risk by many lenders and therefore it takes very little movement, or just a slight adjustment from any of the handful of lenders who operate in this space, to make a notable impact to the average rates."


This article was written by Rachel Mortimer from The Telegraph and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.


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    Article originally published by The Telegraph. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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