The criteria required to secure a buy-to-let mortgage has reached a level that is “ridiculous,” according to Michael Staton, director of Staton Mortgage and Protection Specialists. Staton argues that outdated stress tests imposed by lenders are trapping landlords in unfavourable deals unless they agree to raise rents.
Staton highlighted that the stress testing used by financial institutions was designed for a time when interest rates hovered around 1% to 2%, a stark contrast to today’s rates. “The buy-to-let sector has become the punching bag of the mortgage industry,” Staton said, pointing to the “heavily inflated” fees charged by lenders, including a 3% fee on a 3.99% interest rate.
This comes at a time when average private rents in the UK have surged by 8.6% over the past year, according to provisional figures from the Office for National Statistics. In July 2024, average rents in England, Wales, and Scotland reached £1,319, £748, and £965, respectively.
“The amount of rental income required to secure a new mortgage is absolutely ridiculous,” Staton told Mortgage Introducer. He recounted the case of a client who was forced to increase their rent from £550 to £750 per month just to qualify for a better mortgage rate. “This situation is creating what I would consider a mortgage prisoner,” Staton remarked.
Landlords Considering Exit Amid Tightening Regulations
Amid tightening regulations, speculation is rife that many landlords are considering selling their properties and leaving the market. Staton, however, believes this exodus is largely confined to so-called “cowboy landlords” who prioritize quick profits over tenant welfare.
“The last decade saw a surge of individuals entering the buy-to-let market not as long-term investors, but as those looking for an easy income source,” Staton said. “Now, only serious landlords who view buy-to-let as a long-term investment, possibly even as part of their retirement plans, should be in this market.”
Despite these challenges, Staton noted that he hasn’t seen a significant departure of portfolio landlords in recent years, suggesting that committed landlords are weathering the storm.
Uncertainty Over New Government’s Approach
With the recent change in government, Staton expressed scepticism that the new Labour administration will improve conditions for buy-to-let investors. He criticized the current focus on tenants’ rights, which he believes leaves landlords with little power. Staton advocates for a nationwide system of landlord licensing, rather than the patchwork approach currently in place.
“We’re dealing with an unregulated and unlicensed industry where tenants have more rights than landlords,” Staton commented.
Recent research from the National Residential Landlords Association supports these concerns, revealing that a third of private landlords in England and Wales would consider selling their properties if rent controls are introduced. Over the past year, 17% of landlords have sold properties, compared to just 8% who have bought new ones. Looking ahead, 10% of landlords plan to expand their portfolios, while a third intend to reduce their holdings.
Meanwhile, property website Rightmove estimates that an additional 120,000 rental properties are needed to maintain rental growth at a sustainable rate of around 2% per year. Current figures from the ONS show that average rents for detached properties stand at £1,478, while rents for flats and maisonettes are at £1,244.