Interest-only cuts are unlikely to affect B2L
With lenders choosing to rein in the range of products they offer on interest-only terms, there has been concern about how this will affect the wider market.
It is no surprise to see LTVs on residential interest-only lending cut given the exposure some lenders have to this type of borrower. One suspects this is a significant historical problem and lenders are working to ensure that they do not add to it.
How many lenders would want more interest-only borrowers who have no chance of paying back the capital given the performance of their chosen repayment vehicle?
Some have suggested that the interest-only retreat in the residential sector may even deliver a degree of contagion to buy-to-let.
Are we likely to see less interest-only buy-to-let mortgages offered to landlords?
The answer is no. The reason most buy-to-let mortgages are interest-only is that landlords are able to offset the interest they pay on these loans against tax. That’s not the case on any capital they pay and therefore why opt for a capital and interest mortgage?
Cutting back on interest-only in buy-to-let would be a self-defeating stance and significantly affect a sector which has not only regained its confidence but is starting to make positive strides fuelled by strong tenant demand.
It is important to view the residential and buy-to-let markets as different beasts. I suspect any interest-only contagion is likely to be felt in other residential sectors and buy-to-let is far removed from these.