Ask the Expert

Our specialist mortgage brokers are always happy to offer their advice on a number of common (and not so common) questions our clients face. No topic is too challenging!

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Neezam Romjon

Mortgage Adviser

MORTGAGE RATES FALL FOR BUY TO LET INVESTORS

After speculation over whether the Bank of England would raise the base rate, it decided to keep it the same last week. The Bank’s Monetary Policy Committee (MPC) voted in favour of keeping the base rate as it is, at 0.25%. However, it also sounded a warning that a rise is probably going to happen far sooner than many people thought.

The rate has remained at this historic low since Thursday 4th August last year, when it was reduced from 0.5% following concerns over the Brexit vote. It had remained at 0.5% since Thursday 5th March 2009, when it was halved from the previous month. So, for now, those on tracker mortgages – mortgages that are tied into the Bank of England base rate – can breathe a sigh of relief, but perhaps not for long.

What are the chances of a rate rise before the end of 2017?

With September’s decision now made, we are into the final quarter of the year when it comes to assessing the chance of a possible rise in the base rate. The financial markets now believe there is a much greater chance of a rate increase in November. When questioned a week before the Bank of England’s committee voted on whether to make a change, just 18% believed they might increase the rate this November. Given the warning from the Bank of England regarding the chances of a possible rise coming soon, that figure has leapt to 42% this week. When asked about the odds of a rate rise in December 2017, the figure goes even higher – reaching 54%.

Is now the time to switch from a tracker mortgage?

“Those who are currently on a tracker mortgage may wish to reconsider their position,” said Neezam Romjon, Senior Adviser at The Mortgage Broker Ltd. “There is an ever-increasing likelihood of interest rates climbing very soon, in response to a future increase in the base rate by the Bank of England.

“Furthermore, anyone who has a variable-rate mortgage should also consider their position, and whether it might be prudent to explore the deals currently available on fixed-rate mortgages.”

How many people could struggle with mortgage payments if there is a rise?

Indications are that very few would run into difficulties. The possible impact of a rise in interest rates has been considered in research conducted on behalf of the Bank of England. It indicated that new stress tests used when lending money to those looking for a mortgage have reduced the odds of people running into trouble if rates did increase. Most would be able to absorb a rise if it occurred. Moreover, when a rise does occur, it is unlikely to be any higher than 0.5% in the immediate future.

We shall be watching with interest to see if we do witness a rise in the base rate before the end of 2017. More signs than ever are pointing to an affirmative answer to that question.

Of course, if you would like a FREE review of your current mortgage deal, without any obligation then one of my team would be delighted to assist.

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Neezam Romjon

Mortgage Adviser

INTEREST RATES REMAIN THE SAME – BUT A FUTURE INCREASE IS COMING - NEEZAM

With buy-to-let landlords being hit from all sides with changes that could affect their businesses, it is no major surprise to learn mortgage rates for BTL loans are dropping.

The past three months have seen a drop of around 4% in the amount a buy-to-let mortgage might cost, according to Mortgage Brain. This figure applies to a two-year fixed deal with a loan-to-value of either 60% or 70%. This is great news for landlords who are looking to add one or more properties to their portfolio – especially ahead of more changes coming into force next month.

Meanwhile, two-year tracker mortgages are down by 1% for a 60% LTV (loan to value) deal and 2% for a 70% LTV deal. Clearly, there are good deals to be had, and now may just be the best time to take advantage of them.

Lenders to deliver on new Prudential Regulation Authority ruling from September

September will see new requirements coming into force for lenders offering buy-to-let mortgages. Currently, many lenders when underwriting buy-to-let mortgages focus mainly on the rental income and value of the property they are lending against.

With Phase 2 of the new PRA underwriting requirements, when considering applications from landlords with more than three mortgaged buy-to-let properties all lenders will have to collect and validate details regarding all the properties that the landlord has an interest in. This will include collecting information on property values, rental income, costs and mortgages.

Not only will landlords need to pass a so-called stress test that is connected to changes in interest rates, they should also expect their entire property portfolio to be considered. This means a landlord with even one underperforming property could find it harder to get a BTL mortgage that would enable them to add another one to their portfolio.

The BoE has asked lenders to take this approach because they want lenders to make sure that they fully understand the full financial circumstances of portfolio landlords and the impact any new lending will have on their finances.

Where does the future lie for landlords?

“It’s been a tough few months for buy-to-let landlords,” said Neezam Romjon, Senior Mortgage Adviser at The Mortgage Broker LTD. “Changes in tax rules coupled with stamp duty rises have made the landscape much more dramatic for landlords. When you add in the tougher lending requirements due to hit from 30th September, it’s perhaps not surprising to see some landlords leaving the market altogether.

“Others have switched to limited companies, and I suspect there are more who are biding their time to see what happens before making a move.  Due to the increase in costs over the coming years, some Landlords have focused more on the higher yielding properties such as Student Lets/HMO properties. 

However, the fall in interest rates for BTL mortgage products is certainly a silver lining in a cloud-filled sky at present.”

Could we see a short-term spike in buy-to-let mortgage lending?

It’s possible. Lenders have seen business in this mortgage market dry up, hence the fall in rates to try and attract more customers. This means there are some great deals to be had at present. If landlords are looking to buy before the next raft of changes comes in, now would be the time to make it happen.

No one knows whether buy-to-let mortgage lending will suffer another fall once those new rules come into force. However, there is a distinct chance it will. Only landlords with portfolios of properties will be affected. Since some have already been reducing their portfolios due to other changes in the marketplace, it seems likely there will be far fewer landlords taking advantage of the good deals.

There has arguably never been a time when so many changes have occurred in this market. And with more on the horizon, who knows what the next headlines in this market will be?

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Darren Pescod

CEO

FAQ'S ABOUT THE MORTGAGE BROKER LIMITED

Who is The Mortgage Broker Limited?

We offer mortgage advice to clients throughout the UK. We have put together an award-winning team to assist you in finding the best mortgage for your needs on the market today.

Our aim is to help you with every step of your mortgage process. By coming to us, you can take advantage of our extensive knowledge and experience. You can also find out about mortgage offers and home loan deals that are not widely known or advertised by High Street mortgage providers.

When was The Mortgage Broker Ltd founded?

The company was originally founded in 2005. We have been helping people secure the right home loans ever since.

Who owns The Mortgage Broker Ltd?

Darren Pescod founded the company back in 2005.

Where are you located?

Our head office is in St Neots, Cambridgeshire. We also have advisers located across the UK. This allows us to assist more people than ever before. Regardless of where you are in the United Kingdom, there is a good chance we have an experienced mortgage adviser close by. Contact us for more information on how we can help you.

I’d like to interview the owners of The Mortgage Broker Ltd. Who should I contact?

You can contact Darren Pescod to set up an interview or to get further background on The Mortgage Broker Ltd or on any aspect of the market for press coverage.

I have a business request relating to your products and/or sites. Who should I talk to?

For any requests relating to advertising, sponsorship, cross-promotions, and so on, please get in touch with Darren Pescod.

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Darren Pescod

CEO

RESEARCH INDICATES 47% OF LANDLORDS ARE ALTERING THEIR INVESTMENT STRATEGY

Q. Are Landlords altering their Investment Strategy?

A. Landlords have had a rough ride in recent times. Rules surrounding buy-to-let mortgages have become more challenging, stamp duty has gone up, and now the tax changes laid out in Section 24 are coming into force, albeit gradually. It is perhaps no major surprise then to learn one body of research has found 47% of landlords have “changed their investment strategy”. The research, from Simple Landlords, focuses mainly on the Section 24 rules that will start changing from April next year.

What is Section 24?

At present, landlords can offset 75% of the interest they pay on their mortgage against the income they receive from their tenants. However, come April 2018, this will be reduced to 50%. There will be a further 25% cut in April 2019, before the relief disappears completely in April 2020. At this point, landlords will be able to claim a tax credit worth 20% instead.

While there have been several changes recently that are affecting landlords with buy-to-let properties, the research found the changes to the tax law have been most pronounced. In fact, a quarter of those questioned said they found this to be the most concerning area. While only 6% said they were leaving the buy-to-let market completely, nearly half indicated they would need to change their strategy to ensure it was still viable.

Time to make decisions based on personal circumstances

“Most landlords will be aware of the many changes they have been subjected to of late,” said Darren Pescod, CEO of The Mortgage Broker Limited. “However, since the new tax laws don’t come into effect until April 2018, it’s possible some are still weighing their options.

“The initial 25% drop in tax relief looks set to affect around one-fifth of the market when it occurs next year, in terms of the number of people that will find themselves in a higher tax bracket than they currently are. Obviously, this will become more noticeable in subsequent years as the tax relief drops further. It will be interesting to see if the 6% figure given for those looking to exit the market grows bigger as time goes on, and the changes take effect.”

Plan a strategy

Now is the time for landlords to consider their position if they have not already done so. For some, it may mean getting rid of some properties altogether. For others, making the switch to a limited company might be a better alternative.  Whichever path a landlord chooses, there will clearly be some number-crunching to be done.

The real question is whether there will be additional properties coming onto the market, sold by landlords who are either downsizing their portfolios or quitting the buy-to-let market altogether. This would free up properties for private buyers to purchase, but it might also reduce the rented housing stock available for renters to choose from.

Whatever happens, it looks set to be a bumpy few years ahead for landlords across the country.

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Darren Pescod

CEO

WHERE ARE THE TOP BUY TO LET PROPERTY HOTSPOTS?

A: To say 2017 has been a tough year for buy-to-let landlords would be a huge understatement. Tax relief rules are changing, stamp duty has gone up, and recently we heard news of new stricter rules for buy-to-let purchases coming into force as well. You would be forgiven for thinking the buy-to-let market is almost a lost cause – or is at least heading that way.

But a recent survey has revealed the chances of securing a good yield from a rental property or portfolio could well depend on where you live. Online financial site Totally Money explored the facts and figures relating to half a million properties throughout the country, focusing on England, Scotland, and Wales. Three postcode areas in Liverpool came in at the top of the charts, with yields of 12.63%, 10.57%, and 10.29% respectively. These related to the L7, L6, and L15 postcode areas.

Plymouth, Preston, and Nottingham also make the top 10

Plymouth, Cleveland, and Preston all managed a rental yield of just over 10%, while Dudley came in seventh place with a yield of 9.57%. Meanwhile, the remaining three positions to round out the top 10 went to Nottingham (8.91%), Bradford (8.84%), and Kirkcaldy (8.61%).

University towns feature heavily in the best rental hotspots

“It isn’t surprising to see an absence of London postcodes in this report,” said Darren Pescod, CEO of The Mortgage Broker Limited. “None of the top 25 postcode locations were in London, although many university towns do feature heavily in the top spots.

“Additionally, the median asking prices of properties in these areas are very low compared to those in London, and indeed the south east, too. The top spot has a median asking price of just £116,259, while the highest median value in the top 10 is in eighth place, with Nottingham having a price of £169,521. Some landlords are offering house shares to students, which is likely to be another reason why these areas are doing well. The demand is there, and the property prices make it possible to achieve a good yield.”

But while one of the lowest yields in the report went to the N2 area of London, with a yield of just 1.48%, this was only the second-from-worst result. In bottom place was Bournemouth and the BH13 area, where the yield was calculated to be just 1.41%. This is despite the median asking price of £1,456,539 being just under half of that in the N2 area of London, at £2,994,317.

“Landlords would do well to look at these figures and to find out as much as they can about their local area prior to considering new buy-to-let properties,” Darren Pescod added. “Anyone who is thinking about diving into this market for the first time should also ensure they have all the right information to help them make their decision. 2018 looks set to be yet another challenging year for landlords – and some more so than others, as we can see.”

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