Mortgage Rates Fall for Buy to Let Investors
Neezam Romjon, Senior Mortgage Adviser at The Mortgage Broker LTD, offers his advice on a number of common questions and situations his clients face.
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?