TSB becomes first lender to extend the mortgage charter to buy-to-let – but will landlords really benefit?

TSB has extended the mortgage charter to its buy-to-let customers, allowing landlords to switch to interest-only for up to six months.

The Government, along with lenders and the Financial Conduct Authority, this month introduced a package of measures to support borrowers with rising mortgage rates.

Lenders including NatWest, Nationwide, Barclays now allow home loan customers to switch to interest-only payments or extend the term of their loan for up to six months without harming their credit score.

TSB has extended the mortgage charter for buy-to-let borrowers giving more security if they face difficulties making their mortgage payments

For example, someone with a 20-year mortgage term can temporarily switch to a 40-year term, reducing their monthly payments.

However, on introduction the package only applied to residential mortgages, not buy-to-let. TSB is the first lender to extend the measures to landlords too.

Nicola Bannister, TSB’s financial support director, said: ‘We have a range of ways to help all TSB customers impacted by the rising cost of living – including those worried about their mortgage payments both on residential and buy-to-let properties. We continue to encourage those customers to contact us as soon as possible.’

However, experts have questioned how much help the charter will really be for buy-to-let mortgage borrowers.

As buy-to-let properties are often bought as investments for the rental income, there is less incentive for the owner to pay down the equity, so they are more likely to opt for an interest-only loan in the first place.

As a result, the option to extend the mortgage term, under the charter, also loses its impact as this option only reduces the equity repayment part of a loan and not the interest charges.

Ray Boulger, senior mortgage technical manager at John Charcol, told This is Money: ‘I can’t see that the mortgage charter can help buy-to-let investors very much as the two main premises were that you can extend your term and revert to interest only for six months.

‘The one feature that might help them is that repossession proceedings won’t be started until at least a year after the first missed mortgage payment so that could buy buy-to-let investors a bit of time but I can’t see that the other measures are very helpful.’

Buy-to-let mortgages are often more exposed to rate rises compared to residential repayment loans, because owners are not increasing their equity in the property and reducing their mortgage payments over the term of the loan as a result.

Currently the average two-year fixed buy-to-let rate is 6.96 per cent and 6.82 per cent for a five-year fix, according to Moneyfacts. The average two-year fix was 3.75 per cent last July.