Posts with tag: buy to let mortgages

CML Predicts Buy-to-Let Market Slump

Published On: December 21, 2015 at 9:57 am

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The buy-to-let mortgage market will experience a slump over the next two years, according to the latest report from the Council of Mortgage Lenders (CML).

CML Predicts Buy-to-Let Market Slump

CML Predicts Buy-to-Let Market Slump

The study states: “Buy-to-let faces a challenging period, as changes to tax treatment and the prospect of macro-prudential intervention run counter to otherwise strong fundamentals. Buy-to-let house purchase activity in 2015 may peak and fall away below 2014 levels by 2017.”

The CML claims there are three main causes of uncertainty in the sector: forthcoming changes to mortgage interest tax relief from 2017; the extra 3% Stamp Duty on buy-to-let purchases from April; and the possibility of the Bank of England (BoE) limiting landlord mortgages from next year.

It warns: “Inevitably, these will adversely impact the rate of growth in the sector and even cause lending volumes to ease back.”

It believes that buy-to-let will account for 9% of all UK property transactions this year, much lower than the 2006-08 period. It also says that buy-to-let will account for about 16% of all mortgaged purchases.

The CML report adds: “Future prospects are closely tied to potential macro-prudential regulation and incoming tax changes. We currently expect buy-to-let house purchase activity in 2016 to fall below its 2015 level, and for activity in 2017 to fall below the level seen in 2014.”

Addressing the extra Stamp Duty charges, the CML says that a consequence will be higher activity levels in the first quarter of 2016, as buyers hope to avoid the increase before it is enforced.

The report concludes: “The scale in terms of transactions is likely to be in the low thousands, though the overall impact will be close to zero over 2016, as there will probably be a corresponding fall in transactions in subsequent quarters.”1

1 https://www.cml.org.uk/news/news-and-views/market-commentary-december-2015/

Landlords and Agents Warned that Buy-to-Let Mortgages Could Crash

Published On: December 18, 2015 at 9:43 am

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The private rental sector looks set to face further pressure, as the Government reveals that the Bank of England (BoE) will be given extra powers to regulate buy-to-let finance.

This announcement has added to the series of changes that will affect landlords and the lettings industry.

From April, buy-to-let investors and second home buyers will face a further 3% Stamp Duty charge when they purchase a property.

Additionally, the amount of mortgage interest tax relief for landlords will be reduced and those selling up will have to pay capital gains tax (CGT) much sooner than they do at present.

The Treasury has launched its consultation on cracking down on buy-to-let borrowing, which includes draft regulation.

Landlords and Agents Warned that Buy-to-Let Mortgages Could Crash

Landlords and Agents Warned that Buy-to-Let Mortgages Could Crash

The BoE’s Financial Policy Committee (FPC) would be given powers to limit what buy-to-let investors can borrow. This could mean lower loan-to-value ratios (LTVs) or a higher ratio of rental income to cover mortgage payments.

Chancellor George Osborne says the consultation “is the next step in ensuring that the FPC has the tools it needs to protect our economy”1.

The Residential Landlords Association (RLA) opposes the plans, stating that making access to buy-to-let lending harder could cut the supply of rental homes.

Chairman of the RLA, Alan Ward, claims: “There is no clear evidence that the property boom is caused by buy-to-let investors, when rising prices are mainly concentrated in London and the South East.

“This is largely fuelled by foreign investors and speculators treating our property as a commodity.

“The RLA supports the principle of the BoE ensuring that lending does not pose a risk to the stability of the financial sector. It is important that lenders do not saddle landlords with debts which they cannot pay back. But landlord investment is essential to the supply of homes to rent.”

He adds: “The overwhelming majority of landlords are responsible borrowers providing homes as a long-term business.”1 

The Council of Mortgage Lenders (CML) expects the number of buy-to-let mortgage products to fall by 22% in the next two years.

It has estimated that there were 116,000 new buy-to-let mortgages this year – the highest since 2007. Next year, it predicts that this will drop to 105,000 and to 90,000 in 2017.

The CML’s Paul Smee comments: “We understand the rationale for putting the macroprudential tools at the BoE’s disposal, but also recognise that this does not necessarily mean they will be used.

“In our view, buy-to-let does not constitute a market that currently requires further macroprudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated.

“We urge policymakers to be mindful of the risk of unintended consequences that could adversely affect the private rented sector, alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability.”1 

The consultation follows an interview with the head of the BoE, Mark Carney, who expressed he is “fearful of the risk that investors would all seek to sell at the same time if there were a general decline in house prices”1.

However, the Managing Director of Hunters estate agents, Glynis Frew, has also voiced his concerns. He says: “There have been a number of attacks on landlords recently, including the Autumn Statement’s 3% Stamp Duty announcement.

“Landlords as a whole are being portrayed as greedy investors who are looking to take advantage of tenants. This is simply not the case. The majority of landlords actually own one buy-to-let property and are your typical average Joes.

“It seems strange that no such restriction is in place for those with multiple properties of 15 or more.

“Such financial burdens will inevitably lead to a further rise in rents, as landlords will have to compensate for the extra measures somewhere.”1

The consultation is open until 11st March 2016 and can be found here: https://www.gov.uk/government/news/government-launches-consultation-on-further-housing-market-powers-for-the-bank-of-england

1 http://www.propertyindustryeye.com/agents-and-landlords-alerted-as-buy-to-let-mortgages-look-set-to-plunge/

 

Basel Committee Joins Crackdown on Buy-to-Let Sector

Published On: December 15, 2015 at 3:28 pm

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The buy-to-let sector could be hit by further restrictions, as the Basel Committee looks set to join the crackdown on property investment.

Basel Committee Joins Crackdown on Buy-to-Let Sector

Basel Committee Joins Crackdown on Buy-to-Let Sector

Mortgage experts have already warned that Chancellor George Osborne’s plans to attack buy-to-let taxes could destroy the market.

The Bank of England (BoE) is also joining the fight, after it called for new powers over the interest cover ratio on buy-to-let calculations.

The Basel Committee sets global financial standards. It wants banks to hold twice as much capital against mortgages when repayments are dependent on rental income. It fears that landlords will struggle to meet their repayments if they cannot find tenants for their properties.

This measure would double the amount of capital lenders must hold against a loan from 35% to 70%, pushing up the cost of buy-to-let mortgages and reducing supply.

The BoE’s Financial Policy Committee (FPC), managed by Mark Carney, warns that buy-to-let mortgages are twice as likely to break down than loans for owner-occupiers.

The FPC has requested powers from the Treasury to restrict lending to landlords, which could include limits on loan-to-value and loan-to-income ratios.

The buy-to-let sector is still growing strongly, despite activity dropping by 4% in November, according to a recent study by Connells Survey & Valuation.

John Bagshaw, of Connells, says buy-to-let remains an attractive venture for prospective investors.

He comments: “Much of the energy is being fuelled by a desire to out-manoeuvre the Treasury’s attempts to take more money from buy-to-let business.

“With the Chancellor imposing more fees and regulations on landlords in his most recent Autumn Statement, many would-be landlords are hurrying to get into the market before these changes kick in from April next year.”1

Buy-to-let investors and second home buyers will be charged an extra 3% in Stamp Duty from April.

1 https://www.landlordtoday.co.uk/breaking-news/2015/12/basel-committee-joins-assault-on-buy-to-let

Another Buy-to-Let Lender Tightens Criteria

Published On: December 10, 2015 at 3:56 pm

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Another Buy-to-Let Lender Tightens Criteria

Another Buy-to-Let Lender Tightens Criteria

Godiva Mortgages, part of Coventry Building Society, has announced that it is introducing tougher criteria for buy-to-let landlords.

At present, Godiva requires buy-to-let borrowers to have a rental cover of at least 125%, with the interest rate calculated at 5%, regardless of the pay rate.

However, landlords with a deposit of less than 35% will now be required to have rental cover of 125%, calculated on a higher rate of 5.5%.

For those taking out a five-year fixed rate deal, the change will not apply.

The announcement arrives after the Bank of England (BoE) released a report that suggests it may intervene in the buy-to-let market. This could come in the form of new affordability rules or lending caps.

Barclays has already tightened its lending criteria for buy-to-let borrowers. It recently raised the rental cover required by landlords from 125% to 135%, calculated on a pay rate of 5.79%. Find out more here: /barclays-is-first-major-lender-to-tighten-buy-to-let-criteria/

SPF Private Clients’ Mark Harris predicts: “The market is moving towards a situation where only those with a 50% deposit are likely to qualify for a loan.”1

What do you think of the changes and will these affect your future investments? Keep up to date with all things buy-to-let finance at LandlordNews.co.uk.

1 http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12027732/Buy-to-let-investors-will-need-50pc-deposit-or-no-mortgage.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barclays is First Major Lender to Tighten Buy-to-Let Criteria

Published On: December 3, 2015 at 11:23 am

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Barclays is the first major mortgage provider to tighten its criteria for buy-to-let lending.

Barclays is First Major Lender to Tighten Buy-to-Let Criteria

Barclays is First Major Lender to Tighten Buy-to-Let Criteria

The bank announced that from 7th December, its rental cover ratio will rise from 125% to 135% for all new applications. This decision was made after the summer Budget revealed that buy-to-let mortgage interest tax relief will be cut from 2017. Landlords are expected to incur higher costs as a result.

It is believed that Barclays’ change in criteria could spread out into the market, with other lenders adopting the same rules.

From Monday, all new buy-to-let applicants must prove that they can cover the mortgage payments by 135% of rent.

All existing buy-to-let and permission-to-let mortgages will continue to be assessed at 125% as part of the overall affordability calculation and the affordability rate will stay at 5.79%.

In July, Chancellor George Osborne announced that tax relief for landlords will be gradually reduced to the basic rate from April 2017.

In a statement from Barclays to intermediaries, the bank said that the increase in rental cover ratio will ensure new customers are protected in the long-term.

Chief Executive of mortgage broker SPF Private Clients, Mark Harris, believes the bank is likely to be the first of many lenders to make this change to their buy-to-let criteria.

He adds that the industry is coming to a point where buy-to-let will become a 50% loan-to-value (LTV) product in the South East and London at least, putting a small-scale investor into the same category as a large landlord.

He says: “This means that if you are going to invest in property, you won’t be leveraged at 85% LTV, for example, which was commonplace during the boom, but will need to find a lot more equity.”

He also states that when investors are hit by the higher rates of Stamp Duty from April, smaller landlords will be dropped in favour of wealthier investors. Find out more about the changes in Stamp Duty here: /btl-homes-hit-with-increased-stamp-duty/

“These developments are not good news for tenants, as landlords will inevitably push up rents if they can to cover some of their higher costs and removal of some tax breaks,”1 Harris concludes.

The Bank of England has also announced that it is ready to cool the buy-to-let market. Read more: /bank-of-england-stress-tests-results-revealed/

1 http://www.ftadviser.com/2015/12/01/mortgages/mortgage-products/barclays-buy-to-let-criteria-change-could-move-other-lenders-EgwhCcHiqlXNhb9mucbFiO/article.html

Paragon Reports Buy-to-Let Lending Up 102%

Published On: November 26, 2015 at 3:44 pm

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Paragon Reports Buy-to-Let Lending Up 102%

Paragon Reports Buy-to-Let Lending Up 102%

The parent firm of specialist lender Paragon Mortgages, The Paragon Group of Companies, has revealed its results for the year ending 30th September 2015.

The firm reported a 10.2% rise in underlying profit for the year, hitting £134.7m, from £122.2m in 2014.

Over the last 12 months, Paragon experienced a huge increase in activity, with buy-to-let lending reaching £1.33 billion, equivalent to 102% growth over the year, from £656.6m in 2014.

Its pipeline of new applications further highlights the increase in business. On 30th September, it stood at £713.7m, up by 72.1% on the same period last year.

Director of Mortgages at Paragon, John Heron, comments: “Access to retail markets through Paragon Bank has provided the group with a material diversification of funding. This has helped facilitate a step change in buy-to-let lending, driven by a significant broadening of our product range and a more consistently competitive position for both large-scale professional landlords and smaller scale property investors.

“It has been a fantastic year for the group overall and with our acquisition of Five Arrows Leasing through Paragon Bank, there will be more exciting opportunities to come.”1

Paragon’s figures indicate that landlords are still confident in the buy-to-let sector, despite a series of changes due for introduction in the near future.

Managing Director of Nova Financial, Paul Mahoney, has also “witnessed an increase in buy-to-let property investments” recently.

He continues: “Although the sector has endured some challenging changes on behalf of the Chancellor of the Exchequer, there is no disputing the returns that geared buy-to-let property investments have provided over the past 20 years; nearly tripling that of the FTSE all share index.

“With changes reducing the tax deductibility of mortgage interest and increasing Stamp Duty Land Tax, some may be a bit concerned regarding the impact.”

But Mahoney isn’t too worried: “Overall, the simple law of economics; supply (severe lack thereof) versus demand (increasingly strong) will prevail and property will continue to be a sound investment.”

Will you continue investing in property, or is your time as a landlord coming to an end?

1 https://www.landlordtoday.co.uk/breaking-news/2015/11/new-buy-to-let-lending-up-102-at-paragon