Posts with tag: Mortgage lending

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?

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

Gross mortgage lending hits biggest level for 9 years

Published On: April 21, 2016 at 11:41 am

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Latest figures released from The Council of Mortgage Lenders show March saw gross mortgage lending total £25.7bn.

This was driven by buy-to-let landlords rushing to complete deals before the additional 3% stamp duty surcharge came into play on April 1st.

Increases

The surge amounted to a 43% month-on-month increase in comparison to February. What’s more, mortgage lending was up 59% greater than in March 2015 and the highest figure seen in the month since 2007, where lending hit £30.9bn.

Gross mortgage lending in the first quarter of 2016 was approximately £62.1bn. This is 39% higher than in the first three months of last year.

Economist at the Council of Mortgage Lenders, Mohammed Jamel, said, ‘against a backdrop of a recovering market, the substantial jump in lending in March was significantly influenced by a late surge of activity to beat the Government’s stamp duty change on second properties, which came into effect at the start of April. The distortion caused by this stamp duty change appears to be larger than any previous stamp duty change we’ve seen.’[1]

‘As a result, we expect there will be about 10,000 fewer mortgage transactions each month in the second quarter of 2016 than would otherwise have been the case, offsetting the increase in activity seen in March,’ Jamel added.[1]

House price spike

Jeremy Duncombe, Director at Legal & General Mortgage Club, commented, ‘whilst these latest figures from the CML may seem to suggest that more people are securing mortgages, this rise in lending is actually the result of ever-increasing house prices.’ He feels, ‘the reality is that today’s buyers are being forced to borrow more to cover the cost of their home, which is artificially inflating lending figures.’[1]

Duncombe went on to say, ‘if we want to see lending grow correctly and help more people afford their dream home, the Government and the construction industry must work together to alleviate the housing crisis by building at least 250,000 homes a year.’[1]

Gross mortgage lending hits biggest level for 9 years

Gross mortgage lending hits biggest level for 9 years

Encouraging

‘Driven by the changes to Stamp Duty that kicked in from April, the mortgage market was firing on all cylinders in March as landlords, brokers and lenders shifted into top gear to complete on purchases,’ noted John Eastgate, Sales and Marketing Director of OneSavings Bank.

‘Whatever the cause, the effects of the Stamp Duty changes saw lenders, brokers and conveyancers burning the midnight oil to keep borrowers happy and this was reflected in mortgage activity,’ he continued.[1]

Henry Woodcock of IRESS, observed, ‘February’s gross mortgage lending figures were lower than January’s, so it’s very encouraging to see such a big pick-up in March. A month-on-month decline would have been concerning given the extremely favourable borrowing conditions.’[1]

‘We may we see a further uptick in April, however, looking to the next few months, there are a few factors I think will have a levelling-off effect on gross mortgage lending. The looming EU referendum may mean borrowers will wait and see the result before proceeding. The newly introduced stamp duty land tax surcharge, targeted at prospective private landlords and the Bank of England’s proposed new tighter lending rules to make it harder for landlords to get a mortgage, is bound to have a dampening effect on the buy-to-let market. Lastly, while remortgaging appears to be on the rise, I’d caution that increases may be limited for many interest only borrowers, as lenders now require credible repayment vehicles to be in place first,’ Woodcock concluded.[1]

[1] http://www.propertyreporter.co.uk/finance/market-booms-as-gross-mortgage-lending-hits-highest-levels-for-9-years.html

Bank of England Expects Buy-to-Let Mortgage Lending to Drop Sharply

Published On: April 14, 2016 at 8:31 am

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Activity in the buy-to-let mortgage sector is expected to drop sharply in the coming months, according to a survey by the Bank of England (BoE).

The BoE’s Credit Conditions Survey, which records the predictions of UK banks and building societies, found that lending to owner-occupiers is likely to increase significantly in the second quarter (Q2) of this year, but the opposite will happen for buy-to-let landlords.

The survey’s results arrive as the Council of Mortgage Lenders (CML) reports that £3.7 billion was lent to landlords in February, a huge 61% rise on the same month last year.

The CML claims there were 48,000 loans approved for house purchase in February – consisting of 22,000 loans for first time buyers and 26,000 for home movers. It also found there were 10,300 buy-to-let loans for house purchase.

Bank of England Expects Buy-to-Let Mortgage Lending to Drop Sharply

Bank of England Expects Buy-to-Let Mortgage Lending to Drop Sharply

All of these figures are up on the previous month and significantly higher than the previous year, with 11.1% more loans to first time buyers and 13.5% more for home movers.

The Director General of the CML, Paul Smee, comments: “Activity has been boosted by landlords seeking to complete purchases before tax changes in April. We do not expect activity to show such strong year-on-year growth later in the year.”1 

However, some analysts believe that there may be too much pessimism regarding the sector.

The Director of mortgage broker Anderson Harris, Jonathan Harris, says: “Buy-to-let goes from strength to strength, but of course, figures will be skewed by landlords bringing forward purchases to beat the Stamp Duty deadline.

“It is highly likely that purchase numbers will slip, although we expect remortgaging to continue to thrive, as landlords squeeze every penny out of investments to help cover other tax changes, such as the reduction in mortgage interest tax relief.”1

Despite the forthcoming changes, Paul Mahoney, a finance expert at Nova Financial, insists that “buy-to-let is not dead”, and explains how the changes will affect you: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

Yesterday, we reported that the number of people showing interest in buy-to-let property fell by over a quarter in March compared with the previous month.

New data from e.surv also suggests that mortgage lending dipped over the past month, as buy-to-let activity eased. However, it was still the strongest Q1 for mortgage approvals since 2007.

The firm estimates that there were 67,173 house purchase loan approvals in March, down by 9.1% on February. It believes that first time buyer mortgages accounted for 11,487 of these loans.

For the first three months of the year, e.surv calculates a total of 210,468 house purchase loan approvals, up 13.5% on Q1 2015.

1 https://www.lettingagenttoday.co.uk/breaking-news/2016/4/the-surge-is-over-bank-of-england-says-buy-to-let-lending-about-to-plummet

New Bank of England powers target BTL lenders

Published On: March 29, 2016 at 10:56 am

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Today has seen the Prudential Regulation Authority publish a report regarding underwriting standards for buy-to-let mortgage lenders. This report addresses potential ways to control the volatile buy-to-let market, in a bid to negate the chances of another crash.

Clampdown

As expected, The Bank of England has said it is to implement new, tougher quality assessments on buy-to-let lenders. The Prudential Regulation Authority is to put a, ‘guardrail,’ in place to stop banks from giving risky loans, noting that as many as one in five lenders does not carry out the sufficient checks.

This clampdown comes as concern grows over the notion that there is a bubble in the buy-to-let market, which could ultimately cause the wider property market to slow.

Following the Chancellor’s perceived attacks on the sector, including the 3% additional stamp duty charges on buy-to-let purchases, the Bank has now also weighed in.

Affordability

The Bank believes that lenders should impose affordability checks on all buy-to-let landlords. It said that borrowers should consider how much money borrowers had to cover their interest payments, should costs rise up to 5.5%.

New Bank of England powers target BTL lenders

New Bank of England powers target BTL lenders

Presently, five of the twenty lenders under scrutiny from the Bank do not impose these standards. The Bank is hopeful that these measures will cut the predicted growth of buy-to-let mortgage lending from around 20% a year to 17%.

Though less severe than first feared, the measures could be reviewed later in the year, according to the Chancellor.

In his address to the Treasury committee, Mr Osborne said, ‘the Bank of England and the financial policy committee have identified potential systematic risks in the large increase in the buy-to-let market. It is highly likely we will give the FPC powers over the buy-to-let market. It is possible we can do that later this year.’[1]

[1] http://www.propertyreporter.co.uk/landlords/landlords-to-be-reined-in-by-new-boe-powers.html

 

 

New year Buy-to-Let surge recorded by BBA

Published On: February 24, 2016 at 11:39 am

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More evidence of landlords rushing to beat the forthcoming buy-to-let stamp duty rise has been given with the results of the latest figures released by the British Bankers’ Association.

According to the data, gross mortgage borrowing from High Street banks increased to its greatest level since 2008.

Pre Stamp Duty surge

The number of mortgages approved for house purchases was 27% greater that at the same stage in 2015, with the British Bankers Association putting this down to a rush to beat the increased charges.

Recently, the Council of Mortgage Lenders (CML) reported that it had seen an eight-year high in mortgage borrowing.

Mortgage lending may be rising, but the number of completed property sales has yet to show a significant rise.

Figures from HMRC show that the number of property sales in Britain actually slipped on a seasonally-adjusted basis, in comparison with December.

New year buy-to-Let surge recorded by BBA

New year buy-to-Let surge recorded by BBA

Buy-to-let Warning

Stamp Duty increases are expected to bring in an extra £1bn for the Treasury by 2021. However, landlords have expressed concern that it will see off investment in rental accommodation.

Samuel Tombs, chief UK economist for Pantheon Macroeconomics, is convinced that demand will carry on exceeding supply in the market, with house prices rising as a result.

‘Looking ahead, we expect approvals to remain on an upward trend,’ he noted. ‘Consumer confidence is high, real income gains remain strong and mortgage rates are set to fall again in response to the decline in wholesale funding costs.’[1]

Mr Tombs went on to say, ‘new buyer enquiries at estate agents have been rising quickly and point to mortgage approvals rising by a further 5% over the next three months. With the active supply of homes on the market close to record lows, house prices look set for very strong gains.’[1]

[1] http://www.bbc.co.uk/news/business-35648994