Posts with tag: lending criteria

Landlords, are you a Buy-to-Let Mortgage Prisoner?

Published On: March 24, 2017 at 9:44 am

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Many landlords are stuck with lenders on less than competitive interest rates, or trapped on higher standard variable rates, making them virtual mortgage prisoners, according to The Mortgage Broker Ltd.

Landlords, are you a Buy-to-Let Mortgage Prisoner?

Landlords, are you a Buy-to-Let Mortgage Prisoner?

The nationwide broker is warning that landlords may feel like mortgage prisoners due to new affordability testing, which is being undertaken by lenders. As a result, some landlords are suffering expensive mortgage rates, which are eating into their profits each month, or even forcing them into a loss.

The new lending rules mean that some lenders will also have to take into account a landlord’s other expenses, such as their tax status. As such, landlords must be aware of the new mortgage interest tax relief changes coming into force from 6th April 2017.

It will be on these stricter lending criteria that landlords will be assessed to see if they can afford to borrow.

The Managing Director of The Mortgage Broker Ltd, Darren Pescod, believes that many landlords do not fit the new standards.

He explains: “Britain’s two-million landlords are facing assaults from both the taxman and the Bank of England. The mortgage restrictions are very bad for landlords and pose a major threat to buy-to-let investments. If landlord mortgages are tougher to secure, buy-to-let landlords could find themselves stuck on expensive rates indefinitely.

“Thankfully, the Ipswich Building Society has returned to the mortgage market with two new buy-to-let products, specifically aimed at buy-to-let prisoners or misfits. The good news is that the lender will only assess rental income at 125% of the mortgage pay rate.”

Ipswich Building Society has also confirmed that it will accept remortgage applications from selected intermediaries and its prestige partners, including The Mortgage Broker Ltd.

“This new move will increase the options available to landlords looking to remortgage, where they may be restricted by the Financial Conduct Authority rules for calculating mortgages for buy-to-let landlords,” believes Richard Norrington, the Chief Executive of Ipswich Building Society.

“We continue to provide choice in the marketplace for mortgage misfits and those who may not fit a one-size-fits-all assessment. By employing a manual approach to underwriting, with consideration of each application based on individual circumstances, this new initiative will have creditworthy buy-to-let borrowers who may be finding it hard to remortgage away from their existing lender.”

Landlords, do you consider yourself a mortgage prisoner?

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?

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