It’s unlikely lenders will change existing loans, but the fear is that future property investment mortgages may be repayment only after Lloyds TSB withdrew interest only deals for loans after £500,000.
This is a wake up call for investors because Lloyds TSB is the UK’s largest mortgage lender and owns several popular buy to let brands like BM Solutions and Birmingham Midshires.
Other lenders are also looking at the move because interest only loans leave borrowers with few options other than selling at the end of the mortgage term in the absence of any other repayment strategy.
At this stage, withdrawal of interest only products is a worry not a certainty for buy to let mortgage borrowers.
"In the long term, the possibility highlights an underlying concern for property prices," said Steve Sims. "Many property investment strategies were based on prices rising in a market fuelled by inflation and taking out profits to reinvest.
"This means many investors are vulnerable to mortgage payments going up because they have a high level of borrowing against their properties. Making repayments more expensive makes rentals less profitable and puts more pressure on finding cash to pay the bills, especially in void periods."
The Bank of England has announced this week that inflation is likely to remain around the 2% mark for the foreseeable future which allows the bank rate to stay low.
That means the bank sees house price inflation remaining low with a likelihood of modest increases in property values.
Lenders see a similar scenario and want to protect themselves from borrowers who may not be able to repay the cash they owe when their loans are up.
These lenders want cash not to repossess property, because if prices do not move, they are likely to have to write off billions selling homes at a loss.
Switching borrowers to repayment mortgages is a sensible and prudent option for everyone – the problem is whether landlords and investors afford to pay.
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