Landlords with payment holidays could struggle to take out buy-to-let mortgages

September 1, 2022

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Landlords who’ve taken out loan payment holidays could face problems when they arrived at remortgage or expand their portfolios.

Mortgage brokers are reporting that banks and building societies are asking investors if they’ve taken payment breaks when they assess their applications, resulting in some loans falling through.

Here, Which? explains the potential risks of going for a payment holiday and analyses what is happening to buy-to-let mortgages since the property market reopened.

What are loan payment holidays?

In March, the federal government announced that landlords might take a three-month loan payment holiday if their tenants faced financial difficulties due to the coronavirus outbreak.

Its guidance stated that landlords should pass these breaks for their tenants and agree on a repayment schedule further down the road.

Earlier this month, it was confirmed that individuals who’ve taken a payment holiday can extend it by a further 3 months, and people who haven’t can apply up to 31 October.

Holidays allow you to defer your instalments for a while, however with the caveat that it will ultimately take you longer and cost you more to repay your mortgage.

Are payment holidays an awful idea?

The Financial Conduct Authority says payment holidays won’t affect credit scores, but ultimately, lenders can continue to ask if you’ve taken a payment holiday and factor this in whenever you apply to remortgage or remove a brand new loan.

Mortgage Solutions says numerous brokers have reported that payment holidays happen to be ‘interfering’ with and potentially scuppering new finance applications from landlords.

Taking out a mortgage holiday carries the implication that you’re can not pay, but that won’t always be the situation for landlords.

Brokers say some investors will have instead taken holidays like a precaution against their tenants not being able to pay rent, instead of due to a lack of earnings themselves.

But with payment breaks potentially affecting future borrowing, landlords considering trying to get you ought to only do so if essential – especially if they’re looking to remortgage or take on extra borrowing soon.

What’s became of buy-to-let mortgages?

The mortgage market went via a period of flux amid the COVID-19 outbreak, but you will find signs that things are slowly getting back to normal.

Data from Moneyfacts shows that the number of buy-to-let mortgages has become increasing, after falling significantly during the lockdown.

The quantity of deals now available has risen by 280 in contrast to recently. Moneyfacts puts this down to the federal government easing its restrictions on mortgage valuations and also the pressure on resources developed by payment holiday applications having alleviated.

Some of the most popular increases have come at 75% and 80% loan-to-value (LTV), as shown in the chart below.

How have mortgage rates been affected?

Overall, average rates have increased slightly within the last month, but the return of 80% deals has seen rates for landlords with smaller deposits plummet.

Mortgage type	Average rate (May 2021)	Average rate (June 2021)	Change (%)
Two-year (all LTVs)	2.51%	2.59%	+0.08%
Five-year (all LTVs)	2.94%	3.03%	+0.09%
Two-year (75% LTV)	2.60%	2.64%	+0.04%
Five-year (75% LTV)	3.15%	3.17%	+0.02%
Two-year (80% LTV)	3.61%	3.12%	-0.49%
Five-year (80% LTV)	4.32%	3.65%	-0.67%

Has become a great time to invest in property?

It will be a while before we all know the full effect of COVID-19 around the property market and house prices, but some of the biggest banks and agencies expect to determine single-digit price falls this year.

Lloyds Bank has priced in a drop close to 5%, while the estate agencies Savills and Knight Frank have forecasted similar falls before a recovery in 2021.

Theoretically, which means that now's a great time to grab a bargain, but it’s important to proceed with caution.

Eleanor Williams of Moneyfacts says: ‘Those contemplating investing their cash in property since the mortgage market has reopened may go through now's a good time to understand more about their options, particularly with rates becoming more competitive and product choice beginning to return.’

What are renters searching for?

It’s a sensitive market in terms of both house prices and home loan rates, but investors also need to contend with the changing priorities of home movers.

A survey released the 2009 week through the property portal Rightmove discovered that 49% of renters the lockdown has had an impact on which they’ll consider when searching for their next property.

The biggest shifts were around wanting use of an outdoor, a better space for you to use home, and a good internet connection.

This tallies with earlier research which found city-dwellers are starting to appear further afield looking for a much better quality of life.

All of this means it’s even more important than ever before to take your time, do your market research and take financial advice before investing.