NatWest has toughed its buy-to-let five-year stress rate from 4.75% to 5.10% while also lifting its BTL like-for-like remortgage stress rate by 35 basis points to 5.10%.
Brokers say landlords with loans with the high street lender may be forced to lift tenant rents to afford these higher home loans and remortgages.
They add that the move by NatWest may be mirrored by rivals who will raise their stress tests as interest rates continue to rise.
SelfEmployedMortgageHub.com director Graham Cox says: “Some landlords will try to increase the rent so they can afford the mortgage and pass the debt stress test. But there’s only so far they can push them, for fear of losing their tenants, who are already struggling with the cost-of-living crisis.
“Others will decide to sell up, putting further downward pressure on prices. It feels like the chickens are coming home to roost, after the folly of years of ultra-low interest rates, and laissez-faire attitudes to property prices.”
The move comes as the as the Bank of England raised the base rate by 50 basis points to 2.25% today, the highest rate for 14 years and the seventh hike since December.
The hike aims to combat rising inflation, driven by food and energy costs, which the Bank now predicts will hit 13% before the end of the year.
The Office for National Statistics’ latest data shows that inflation dipped from 10.1% in July to 9.9% in August.
The central bank also forecasts that the UK economy will suffer five quarters of recession from the end of this year.
Shaw Financial Services founder Lewis Shaw says: “Many lenders will update their stress tests, and it’s no surprise that NatWest is first out of the traps as it had a more lenient stress test to start with. It won’t impact many borrowers unless they’re higher-rate taxpayers looking to buy in an expensive area.”
But Magni Finance director Ashley Thomas says: “It’s highly likely tenants will suffer in the long term from increased rent due to the higher mortgage costs landlords are incurring.”
Bolton Business Finance managing director Marcus Wright adds: “If I was a landlord with low yielding buy-to-let properties, I would be extremely worried right now about the rising rate climate. BTL properties with low yields under 5% may well struggle to remortgage if they cannot pass the stress tests.
“However, it tends to be less of a concern in the North and Scotland because yields are much higher, with some postcode areas having average yields up to 11%.”