Lenders warn of BTL mortgage rate hike

PEER-TO-PEER property lenders have warned that a buy-to-let mortgage rate hike could be on the cards amid expectations of a rise in interest rates.

Although the Bank of England decided to hold UK interest rates at 0.5 per cent at the start of May, an analysis of Moneyfacts data by Goodbody reveals mortgage rates continued to rise during the month.

“Rates on shorter maturity fixes are generally on the rise, though the average five-year fix remains static at 2.91 per cent,” analysis from the brokerage said.

Read more: Landbay expands into HMO buy-to-let loans

Latest market speculation is for an interest rate hike in August and it is likely mortgage rates will continue to gradually tick upwards until then, Goodbody added.

The latest data has increased the possibility of specialist buy-to-let P2P lenders increasing the rates they offer borrowers.

Filip Karadaghi, managing director of LandlordInvest, said mortgage rates are usually driven by future expectations.

Read more: How does LendInvest’s buy-to-let offering stack up to P2P rivals?

“Given that the current consensus seems to be in favour of a rate hike, it is likely that rates will rise until there is any change in expectation,” he stated.

John Goodall, chief executive of Landbay, pointed out that borrowers have enjoyed rock-bottom mortgage rates in recent years, but with the end of the Term Funding Scheme (TFS), and a rising base rate on the horizon, “the good times may be coming to an end”.

“Since the summer of 2016 the Bank of England’s TFS has injected a significant sum of cheap capital into banks and encouraged them to lend,” he explained. “The end in February marked the inevitable rise in the cost of lending for banks, and therefore more expensive mortgages.”

However, Goodall said a number of non-bank buy-to-let lenders have not been reliant on the TFS and so have not been directly affected by the change.

“Although a rate rise was held off in May, the base rate is expected to at least double over the course of the next year,” he added. “With interest rates fixed for anything between two and 10 years, lenders have also had to take this expected rise into consideration when pricing loans.”

P2P investors, meanwhile, are expected to see better returns once the Bank starts increasing interest rates.

Lending Works said in a blog in April that when the Bank pulls the trigger on base rate rises, the loans offered by P2P platforms will increase, “while lenders will enjoy improved returns”.