Bank of England’s BTL changes make it harder to get a mortgage

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Six months after the Bank of England’s (BoE) latest attempt to cool the buy to let market, almost two thirds of landlords (63%) who are aware of the changes say it is now harder to get a mortgage.

The changes

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Landlords can no longer afford to be Ostrich-Like on rates

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The good news is that research has identified landlords as being the biggest winners from the recent decade plus run of low interest rates. Owner occupiers tend to take out mortgages that repay both interest and capital whereas landlords with buy-to-let mortgages are usually repaying just the interest.  This is one of the reasons why the era of low rates ushered in by the financial crisis of 2007-8 was such a big plus in making being a landlord look so attractive.

Of course, the situation is changing and landlords can no longer bury their heads in the sand about interest rates.  The only way is up.  The Bank of England has been dropping very heavy hints over the past months about the need to raise rates to get back to some sort of normality following the market crash.

We saw the first base rate rise last November which took the rate from 0.25% to 0.5% but most forecasters do not expect this increase to be the last.  The Bank’s Monetary Policy Committee meets again this week on March 22^nd but that may be a little too early to see the next hike.  The month of May looks more likely with possibly one more rate rise after that before the year is out.

Much has been written about the landlords who dashed to grab two-year fixed rates mortgages to buy properties just ahead of the April 2016 increase in Stamp Duty and they will certainly be returning to the lending market.  But there will be other landlords who have not looked at their mortgages for much longer than that.

Undoubtedly there will be a number of landlords still on SVRs either because a fixed rate expired, or they have drifted onto this rate with their existing lender or perhaps because of historical reasons due to changed personal circumstances.  Whatever the reason these landlords are going to wake up to a very different mortgage market today.

Firstly, the number of lenders and deals on offer has increased considerably over recent years.  When we at Property Master seek to match landlords against the best deal for them we are now scanning 90 plus lenders but that is just the start.

Each lender will offer a range of fixed rate mortgages for a range of different Loans to Value so there can be a bewildering variety of choice.  And it is not always the lowest rate that represents the best value.  Landlords also need to factor in arrangement fees which can total up to £2,000 which can take the shine off what looked like the cheapest offer.

Many landlords wanting to revisit their rate may well be concerned about redemption fees.  Is it worth paying a fee to find a new lending deal?  The answer is with rates going up it may well be the right thing to do.  If a landlord is on a comparatively high interest rate and there is a mortgage deal that is much cheaper it can be worth biting the bullet and paying a redemption fee to gain the lower rate.

The other big change some landlords who have been out of the market for a while will notice is their now more formal status as portfolio landlords.  Since last year landlords with four or more properties will now have to, if they haven’t done so before, run their properties much more like a business.  New stricter lending criteria which came in from last year for this class of landlord has hastened the greater professionalisation of the marketplace.

Portfolio landlords should expect to be asked to provide a range of paperwork to any prospective mortgage lender to prove that each property within their portfolio is performing well in terms of rental returns.  Any one property not pulling its weight could potentially lead to a lender declining to lend.  It pays to prepare in advance to convince a lender you are a good bet.

Finally, the regulatory environment around the private rental market continues to tighten and this means landlords need to manage their finances much more closely.  As we know landlords used to be able to deduct the full amount of their mortgage interest costs from the income they make but now this is being reduced year on year until it reaches a basic rate tax reduction only.

This lost income should spur landlords into leaving behind unattractive interest rates.  Likewise, pressures around the need to comply with new regulations such as the new Minimum Energy Efficiency Standards due to take effect on April 1^st or changes around landlord licencing should also be a spur to action.

The private rental market is changing fast and coupled with the new higher interest rate environment the need to find the best mortgage deal is more important than ever.  Despite the threat of higher rates and the ending of sources of cheap borrowing for banks such as the Term Funding Scheme there are still some very attractive mortgage rates around – especially if landlords are prepared to fix their rate for five years.

How much longer these offers will continue for is very difficult to predict.  We are seeing record applications at the moment which suggests many landlords are seeing the need to get their finances onto a new footing before it is too late.

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Should I get a new 12 month tenancy agreement signed?

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My 12 month tenancy is coming to an end once again. Last time it ended one of the tenants moved out and the other remained (moving a partner in, under a re-signed agreement). A new agreement was drawn up and any changes within the new agreement were initialed by the remaining tenant

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Should I get a new 12 month tenancy agreement signed?

admin    Uncategorized     agents

My 12 month tenancy is coming to an end once again. Last time it ended one of the tenants moved out and the other remained (moving a partner in, under a re-signed agreement). A new agreement was drawn up and any changes within the new agreement were initialed by the remaining tenant

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Should I buy a third buy to let?

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I currently have 2 buy to let flats in Reading. Each brings in £9800 per annum. I have a total of £125000 mortgage lending on these and they have a value of £410000. I work earning £21,900 and have a pension of £18800.

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Shadow Housing Minister urges crackdown on rogue landlords

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Labour to lean on landlords:

Labour’s shadow housing minister, John Healey, on visit to Walsall, has been urging councillors to clampdown on rogue landlords. He says that these rogue landlords are housing thousands of tenants in squalid conditions.

Stating that the West Midlands is one of the worst parts of the country for poor quality private rented homes, with one-quarter of homes not properly fit for people to live in, Mr Healy said tenants’ health is being put at risk by faulty electrical wiring, chronic damp and vermin infestations.

Praising the borough council for its efforts to force unscrupulous landlords to improve conditions in their properties, he said:

“It is a major problem everywhere, but the West Midlands has a bigger problem than most other places when it comes to private rented homes that are not up to scratch.

“There are too many tenants who just can’t get their landlords to do what they should. In fact, one in four private rented homes don’t even qualify as being fit for human habitation.

“I’m talking about properties with faulty electrical wiring that can cause a fire, condensation or damp, they’ve got vermin infestations. All of these things can be hazardous to health and to life.

“Labour is leading legislation that we have now got the Government to back, to give tenants the legal right to take their landlord to court if they don’t make necessary improvements.

“But in the meantime, people need a council like Walsall to step in and lean on landlords that aren’t doing the job.”

During the visit Mr Healey met with Walsall Council leader Sean Coughlan to discuss new plans for a licensing scheme for private landlords in the town.

Mr Healey said:

“All credit to the council for putting this in place. It shouldn’t be needed, but it is, and if that is what it takes to get some private landlords to pull their fingers out then it must be a good thing.

“Without a clampdown on the worst landlords, people are at the mercy of living in conditions that no one should have to put up with.”

Walsall council says its team of housing standards officers will advise tenants and landlords to help them meet their legal obligations. They will inspect premises to ensure safety regulations are met, particularly in homes in multiple occupation (HMOs).

Elsewhere, Labour’s Jeremy Corbyn has committed to introducing rent controls when it next forms a government:

“We will control rents – when the younger generation’s housing costs are three times more than those of their grandparents; that is not sustainable. Rent controls exist in many cities across the world and I want our cities to have those powers too and tenants to have those protections”, Mr Corbyn has said.

Labour is also considering using powers to forcing landowners into giving up land sites for a fraction of their current market value in what it says will slash the cost of council house building.

John Healey has already drawn up a proposal which would see a Jeremy Corbyn-led government change the law so that landowners would be forced to sell their land at confiscatory prices. Ordinarily, one hectare of agricultural land worth around £20,000 would be worth nearly £2m when planning permission for house building is achieved.

Image – Walsall town centre

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Shadow Housing Minister urges crackdown on rogue landlords | LandlordZONE.

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