RANT: Why do BTL mortgages cost more than residential ones?
Posted by markharrison on May 4, 2007
BuyToLet (BTL) mortgages have been around for 10 years now, and in all that time, we’ve accepted that they were a bit more expensive than “residential” mortgages.
It was only recently that I thought to ask “why?”
The reasons that were originally given were that landlords were a “higher risk” – that owner-occupiers were less likely to default and run away, leaving the mortgage company with a problem that would take a long while and a lot of staff time to resolve. Landlords were perceived to be more likely to cut and run, since it was “only” an investment, not their own homes at immediate risk.
On this basis, it wasn’t unreasonable that lenders should charge a little more to landlords to balance out this risk. (If you take on more risk, you’ve got to aim for a bigger reward).
However, recent figures by the Council of Mortgage Lenders have shown that the reverse is true. If you look at the mortgages issued in the last 10 years, it turns out that owner-occupiers are more likely to default.
This gives mortgage lenders three choices:
- Stick to their own rules, and make BTL mortgages cheaper than residential ones
- Admit that they are fleecing landlords and taking higher profits and lower risk
- Admit that, actually, this is a “social engineering” scheme, designed to promote a policy of home ownership rather than landlord-tenant relations.
The third option might sound reasonable, even speaking as a property investor.
But don’t you think that, in a democracy, policies like that ought to be out in the open, discussed, debated and voted on???
And if it’s not the third one, what’s it going to be – an admission of fleecing, or price cuts?