Posts with tag: buy to let mortgages

Uncertainty Causes Slowdown in Mortgage Approvals in April

Published On: May 13, 2016 at 9:13 am

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A slowdown in mortgage approvals in April was caused by uncertainty in the economy, according to the latest Mortgage Monitor from the UK’s largest chartered surveyor, e.surv.

Uncertainty Causes Slowdown in Mortgage Approvals in April

Uncertainty Causes Slowdown in Mortgage Approvals in April

Seasonally adjusted house purchase approvals in April totalled 57,512 – down by 19.4% from the 71,357 loans granted the previous month. This significant decline follows a previous three-month average of 72,693 house purchase approvals since the start of the year.

e.surv believes that economic uncertainty is playing a role in this decrease, as are new tax changes for buy-to-let landlords.

Annually, house purchase lending has fallen by 14.9% from the 67,594 loans recorded in April 2015. Preceding this decline, annual rises of 20.2%, 17.9% and 14.7% were seen, as Stamp Duty changes triggered an uplift in overall lending levels. The drop also follows record high lending during the previous quarter, fuelled by buy-to-let borrowing.

The Director of e.surv, Richard Sexton, comments on the figures: “The mortgage market is entering a more turbulent phase. As lenders steer for safety, three different forces are at work. First and foremost are the effects of the looming EU referendum on confidence and certainty for the UK. Whichever way the result, financial markets could see rapid shifts in the days and weeks beforehand, and especially immediately afterwards.

“Secondly, the lending market is in one sense beginning to return to its normal rhythm after suffering a hangover from the party of buy-to-let activity seen earlier this year. As this excitement begins to wear off, a more normalised lending climate is beginning to reassert itself. Home lending is solid beneath this predicted surface slowdown, but now the headache is by no means over, as new economic risks cause understandable caution from lenders.”

He adds: “The third major break on mortgage lending is a deeper foreboding about the solidity of the UK economy – quite subtle, but potentially more major.”

Sexton advises lenders: “It’s crucial for lenders to manage risks in the coming months. There now looks to be completely different interest rate speculation on the horizon and all eyes will be on the Bank of England to see the next steps taken. With some calls to cut interest rates rather than raise them, lenders will have to remain even more alert to economic conditions. And slowing growth is a further sign which is adding to doubts over economic security in general.”

However, he concludes: “Despite all these ongoing risks, the underlying core of the lending market appears strong enough to weather such tests. For some first time buyers, prospects are improving and despite rising house price costs, lenders remain keen to help credit-worthy borrowers get on the property ladder.”

Recently, mortgage lenders were warned to tighten their lending criteria on buy-to-let products, due to new rules in the sector.

Landlords Could Become Mortgage Prisoners Under New Buy-to-Let Rules

Published On: May 10, 2016 at 10:18 am

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A warning has been issued regarding the types of mortgages still being offered to landlords, which risk them becoming prisoners in the future under new buy-to-let rules.

The Commercial Director at Foundation Home Loans, Simon Bayley, reports that some buy-to-let mortgage lenders are continuing to offer pay rate products on fixed rate loans or lifetime trackers, which may end up creating “the next affordability bubble”.

Landlords Could Become Mortgage Prisoners Under New Buy-to-Let Rules

Landlords Could Become Mortgage Prisoners Under New Buy-to-Let Rules

He says: “Brokers must appreciate the potential consequences of recommending a pay rate buy-to-let mortgage product today to landlord clients in light of the expected changes from the Prudential Regulation Authority [PRA].”

In March, the PRA – part of the Bank of England (BoE) – proposed further action in the buy-to-let sector “to ensure underwriting standards did not slip” and to avoid lending getting out of control.

The PRA believes that without stricter lending criteria, lenders can expect a gross increase of 20% in buy-to-let borrowing over the next two to three years.

Some lenders have already begun updating their criteria, most recently the UK’s biggest building society, Nationwide.

The PRA urges lenders to take into account how much cash borrowers have to cover their interest payments in a worst-case scenario of interest rates rising to 5.5% for five years. The authority believes that this should ultimately reduce buy-to-let approvals by between 10-20% by 2019.

Now, Bayley warns that lifetime trackers or shorter term fixed rate products on a pay rate basis can still be proposed to maximise the loan amount or to fit on affordability.

“However, when landlords come to refinancing, they will have to fulfil the PRA criteria of a minimum stress rate of 5.5%, not taking into account any future interest rate increases, which could leave them as mortgage prisoners and unable to refinance away from their current lender,” he says.

“On the face of it, recommending a pay rate mortgage makes sense to landlords who want to maximise the amount they are able to borrow, because lenders can still use the pay rate in the calculation.”

Although he warns: “However, when we go forward in time and landlords wish to refinance, they will find that instead of using pay rate, they must now face a stress test at a minimum of 5.5%, which could very well make any chance of refinancing impossible.”

Over the summer, the BoE is expected to approve the PRA’s proposals, at which point, Bayley insists: “Advisers will need to ensure that they have discussed the implication of pay rate mortgages with their clients. Making sure they are fully aware of how pay rate mortgages might be attractive at outset because of the uplift they provide, but how they could leave the landlord stranded further down the line, will be vital in terms of offering the right advice.”

We will continue to provide updates on changes to buy-to-let mortgage lending criteria.

Buy-to-Let Lending Criteria Gets Tougher

Published On: May 9, 2016 at 9:14 am

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With the UK’s biggest building society, Nationwide, tightening its lending criteria for buy-to-let investors, it could become even harder for landlords to invest in the private rental sector.

The building society has cracked down on rental calculations and loan-to-value (LTV) ratios for buy-to-let mortgages, ahead of forthcoming tax changes in the sector.

Buy-to-Let Lending Criteria Gets Tougher

Buy-to-Let Lending Criteria Gets Tougher

Nationwide’s Mortgage Works – the building society’s buy-to-let arm – is increasing its rental cover requirements from 125% of the loan to 145%. It is also cutting its maximum LTV from 80% to 75% from 11th May 2016.

At present, landlords can claim tax relief on monthly mortgage interest payments at the top level of tax they pay, up to 45%. However, Chancellor George Osborne has introduced new tax rules that will see thousands of buy-to-let landlords’ profits hit, as the amount they can claim as relief will be set at the basic rate of tax, currently 20%.

Some basic rate taxpayers will also be affected, as the change will push them into the higher rate tax bracket. The reduction will be phased in over four years from April 2017.

Property investment firm Armistead Property believes that the tougher lending criteria and recent tax changes will not have a major impact on the housing market as a whole.

The company’s Peter Armistead explains: “This move by Nationwide could trigger other big lenders to follow suit. The banks seem to believe that the Chancellor’s tax crackdown on mortgage tax relief could cause difficulties for landlords. Though the new tax rules are challenging for most landlords, rising asset values and rental income will go a long way to protect profits.

“Landlords have plenty of options available that will help offset the increased taxation. The first thing landlords should do is carry out a serious portfolio review and work out how the tax changes and tougher mortgage lending will affect them and what options there are to save, or make, more money. For example, mortgaging to get a better deal, renovating some old stock – these costs will be tax deductible, selling some properties, or increasing the rent.”

He believes: “Landlords need to think outside the box and ask themselves questions like, ‘Can I buy with cash or with far less leverage?’, ‘Should I incorporate?’, ‘Can I change a house into an HMO [House in Multiple Occupation] and increase the rental income?’, ‘Can I get planning on an existing property to increase its value?’, or ‘Can I add an extension or convert the cellar?’

“Although the Government is trying to curb the buy-to-let market, property investment is robust in the long-term. It is estimated that two million Britons are now private landlords, collectively renting out five million properties. With rising demand for rental property and a growing shortage of accommodation, the buy-to-let market will continue to give a good return on investment.”

The Residential Landlords Association has recently reported that the majority of landlords are thinking of increasing their rent prices.

How will you react to the changes?

Deputy BoE governor concerned over BTL lending

Published On: May 5, 2016 at 9:16 am

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With buy-to-let investment continuing to move at a steady pace, despite the Government’s moves to cool interest, the Bank of England’s deputy governor has moved to express his concerns.

Low-cost, interest only mortgages and substantial rental yields continue to drive momentum for investors. However, Sir Jon Cunliffe is worried about the pace at which the sector is growing.

Concern

The deputy governor also said he was concerned about mortgage lenders over-exposing themselves to buy-to-let, lending money more freely as a result.

Since 2008, buy-to-let lending has increased by an average of 6%. Cunliffe pointed out that buy-to-let lending to landlords now makes up more than 15% of all mortgages, up from 8.5% in 2007.

As mortgage lending in the sector grows, Cunliffe feels it is important to look carefully at whether lenders’ underwriting procedures are falling.

He observed, ‘at around the start of 2016, lenders were planning to grow their gross buy-to-let lending by, on average, almost 20% per annum over the next two years, with some challenging banks and smaller building societies planning to grow their buy-to-let books at a much faster rate.’[1]

‘When some form of credit is growing fast one needs to look very carefully at whether lenders’ underwriting standards are slipping,’ he added.[1]

Deputy BoE governor concerned over BTL lending

Deputy BoE governor concerned over BTL lending

Tighter

In March, the Bank of England announced plans to introduce more tighter checks on buy-to-let lenders. The Bank’s Prudential Regulation Authority (PRA) said that it was announcing the moves to stop banks from making risky loans. It warned that 20% of lenders were guilty of not making sufficient credit checks.

Its main concern was that a housing bubble could be created, which in turn would cause a wider housing market slowdown. Over 1.7million properties now have buy-to-let mortgages, representing 17% of loans used to purchase property in the last year.

[1] https://www.landlordtoday.co.uk/breaking-news/2016/5/major-concern-over-surge-in-buy-to-let-mortgages

Nationwide Updates Lending Criteria for Buy-to-Let Landlords

Published On: April 29, 2016 at 11:01 am

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Nationwide building society is updating its criteria for lending to buy-to-let landlords, ahead of changes to taxes for property investors.

Landlords who take out new loans from the society’s specialist arm The Mortgage Works (TMW) will only be able to borrow up to 75% loan-to-value (LTV), instead of the current 80%. They must also prove that their rental income is at least 145% of their monthly mortgage payments, up from the present requirement of 125%.

These changes were announced as landlords face a reduction in the amount of mortgage interest they can claim against tax, which will come into effect from April 2017. If you are concerned about how current and future tax changes will affect you, we have advice from finance expert Paul Mahoney, of Nova Financial: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

Nationwide Updates Lending Criteria for Buy-to-Let Landlords

Nationwide Updates Lending Criteria for Buy-to-Let Landlords

Under the change, landlords that currently receive tax relief of 40% on their mortgage interest payments will see the amount cut to 20% over five years. Lenders have also been advised to consider the borrower’s costs associated with letting the property, including tax costs, when assessing affordability for loans.

Nationwide’s updated rules on rental income, coming into effect on 11th May, will mean that a landlord that makes £10,000 per year in rent will only be able to borrow £138,000, rather than £160,000.

Alternatively, if they wish to borrow up to £160,000 at 65% LTV, they must find a property that makes an extra £130 per month in rent.

The Managing Director of TMW, Paul Wootton, says the move is designed to help landlords strengthen their cashflow position “and help them withstand the impact of increased costs from the new tax regime”.

He adds: “As a responsible lender, this change is a pro-active move that recognises the need to help safeguard rental cover for landlords over the coming years, and in advance of the forthcoming changes to mortgage interest tax relief.”1 

The Director of Coreco mortgage brokers, Andrew Montlake, believes the change shows that lenders are starting to worry about how recent tax changes will affect landlords’ income in the future.

He says: “I suspect they will not be the last to change their rental calculations with this in mind, and landlords should review their portfolio and financing requirements sooner rather than later, as well as making sure they are aware of the very real effects these tax changes will have on their future income.

“The worry is that this will hit not just landlords, but tenants too in the form of higher rental payments, at a time when many are already stretched.”1

Other lenders have also been making changes to their lending criteria.

It is now almost a month since buy-to-let landlords and second homebuyers began being charged an extra 3% in Stamp Duty. The Association of Residential Letting Agents has expressed concerns that this is causing the level of rental property supply to decline.

1 http://www.theguardian.com/money/2016/apr/29/nationwide-tightens-lending-criteria-for-buy-to-let-landlords

Could PRA proposals lead to increased activity?

Published On: April 28, 2016 at 11:14 am

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Newly proposed underwriting rules for buy-to-let lenders as suggested by the Prudential Regulation Authority (PRA) could lead to an increase in market activity.

This is the view of buy-to-let specialist lender, Fleet Mortgages, who feel that landlords will look to secure finance before the PRA intervene.

Stricter conditions

Just last month, the PRA issued recommendations aimed at imposing stricter lending affordability measures on applicants looking for a buy-to-let mortgage. The PRA wants to see the amount of money being borrowed to be reduced,

Fleet Mortgages believes the new rules could come into place as soon as January 2017, but that some lenders will want more time to adapt to any alterations. Landlords and mortgage advisors could treat the coming months as they did in the period leading up to the stamp duty alterations on 1st April.

This period saw a surge in buy-to-let mortgage demand and activity and Fleet Mortgages suggests landlords looking to remortgage are more likely to do so before the new PRA lending criteria comes into play.

What’s more, it is feared that landlords with a large portfolio could be most affected by the changes, with many looking to secure finance in 2016 instead of waiting.

Increases

Bob Young, Chief Executive Officer of Fleet Mortgages, noted, ‘many have suggested that the recent stamp duty deadline is the only one facing the buy-to-let sector and market activity will now wither on the vine as landlords take stock of their positions for the foreseeable future.’[1]

‘The recent PRA consultation on buy-to-let underwriting actually makes it more likely that we will see activity levels begin to increase again over the course of the year as we get closer to the implantation of the rules. Certainly, given their intention to drive down the amounts buy-to-let landlords can borrow, it would be logical to think existing landlords seeking to remortgage or capital raise or both will make the most of the current market conditions which will allow them to borrow at higher levels,’ Young continued.[1]

Could PRA proposals lead to increased activity?

Could PRA proposals lead to increased activity?

Compromised

Mr Young went on to say, ‘Once the new rules kick-in, landlords and their advisers may well find their ability to secure the money they want has been compromised by the stricter underwriting criteria imposed on lenders, plus of course the likelihood that increased capital requirements will also impact on lender’s ability to offer the same levels of funding. It all adds up to the potential for renewed vigour in the buy-to-let sector, especially for those who may be deemed portfolio landlords, given the special affordability requirements they will face next year.’[1]

Offering advice to landlords, Young stated, ‘Our advice to advisers is to make sure any clients with these circumstances are contacted and they are made aware of how the lending landscape might change in 2017. Those in a position to make their new mortgage arrangements now are likely to find a much more hospitable lending environment, rather than waiting for lenders to implement these new rules and ultimately for them to end up disappointed.’[1]

[1] http://www.propertyreporter.co.uk/landlords/could-new-pra-proposals-reignite-market-activity.html