Despite the many challenges, BUY-TO-LET remains a sizeable part of the mortgage lending marketplace.
It’s sizeable because the rental sector is likely to continue to be fueled by demand brought about by issues such as; not enough homes being built; and the deposit and affordability concerns faced by tenants who may want to leave the rental sector and become homeowners.
Additionally, the pension freedoms for the 55+’s may result in some opting to become landlords, and they, like others could benefit from the buy-to-let mortgage deals out there.
Recent initiatives
HOWEVER, there is no doubt that landlords may feel fairly unloved at the moment. No sooner had they come to terms with the stamp duty increase, and the stepped reduction in tax relief, they then had to take on board the greater regulatory requirements brought in at the start of 2017.
The initial developments required lenders to consider likely future interest rates over a five-year period (unless the loan rate is fixed or capped for five years or more).
Specifically lenders have to:
– Stress test their lending against an expectation of an increase in buy-to-let mortgage rates of at least 2%.
– Assume a minimum rate of 5.5%, even if the stress test of a 2% increase would actually produce a lower rate than that.
Later in the year, the Prudential Regulation Authority (PRA) put in place special underwriting rules for those landlords that have a portfolio of four or more managed properties.
Portfolio Landlords
Broadly, what this initiative means is that every landlord seeking a loan (and has four or more properties) may now have to provide the following information across their whole portfolio:
– Landlord’s buy-to-let experience, full portfolio of properties, and outstanding mortgages.
– A business plan.
– An asset and liability statement (including any tax liability).
– A cash flow analysis.
From here, lenders would not only ‘stress-test’ affordability against the property for which you’re trying to raise finance, but also against the whole background portfolio.
In some instances, the lender may also insist that no sole property within the background portfolio can have less than 100% rental coverage.
Elsewhere, many lenders may adopt a ‘proportionate’ approach which means that they would require more information from a landlord with 30 properties, than one with just five.
How we can help…
It may all seem quite daunting, but we operate in this environment day in, day out, so will know how to make the process less painful, identify the best type of approach for you, and highlight the key elements of your portfolio that need to be monitored.
To some extent, once we’ve gone through the process, much of the necessary information should then be in place (and easily updated and adapted), for any future mortgage, or remortgage needs.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that the rental income will be sufficient to meet the costs of the mortgage.
The value of your Buy-to-Let property and income from it can go down as well as up. You may also require advice on the legal and tax issues.
The Financial Conduct Authority does not regulate legal and taxation advice, and most Buy-to-Let mortgages.
HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Our broker fee is £395, payable should you ask us to arrange your mortgage, payable on application. This fee will be fully refunded if the mortgage application is declined and we are not able to source a suitable alternative lender.