One in three landlords could be forced to sell up because they can’t afford to remortgage their rentals.

That’s the stark warning to agents as rising interest rates threaten to turn many rental owners into mortgage prisoners.

Lenders are tightening their borrowing criteria, which a growing number of landlords fail to meet.

They are left with the choice of being stuck on the standard variable rate (SVR) – or selling up.

Research by specialist buy-to-let (BTL) lender Mortgages for Business, carried out for the Daily Mail,showed some buy-to-let investors are being forced to accept variable rates as high as 9.5% after failing affordability tests.

Gavin Richardson, managing director of Mortgages for Business said, “It’s a critical situation for small landlords at the moment. They are worried about Section 21 [eviction ban] reform and EPC regulations and tax. On top of that, they’re having to worry about higher mortgage rates.

‘Right to be worried’

“They’re right to be worried. We’re seeing landlords coming off rates of 3.5% and being unable to remortgage because, according to the lender’s stress test, their loan is no longer affordable.”

He added: “Unable to secure a new deal and with nowhere else to go their loans are reverting to the lender’s standard variable rate, which average about 7.5%. In fact, in the worst-case scenario, they are moving to their lender’s standard variable rate at rates as high as 9.5%.

“Their only other options are to pay a socking-great fee to secure a more reasonable interest rate, which can cost them tens of thousands of pounds. Or they can sell up and go home.”

£44,000 shortfall

A landlord charging £1,200 a month rent with a mortgage of £225,000 coming off a fixed rate of 3.99% would now be offered a remortgage of £180,893, based on a rate of 5.49%, falling £44,000 short of the loan amount they need to remortgage.

At a rate of 5.99% the shortfall rises even higher to £59,207; at 6.2% it is £67,114. To be accepted for a remortgage of £225,000, the landlord would have to increase the rent they charge by nearly £300 a month to £1,495.

Some lenders offer landlords a new deal without asking them to pass a new stress test. Others will allow borrowers to remortgage at reduced fees, while a few are actively looking at ways to help.

“But not all of them will,” concludes Richardson. “The money markets are proving tricky for lenders to navigate and many are sticking with ‘computer says no’. Having a good broker has never been important.”