Mortgage lenders relaxing their criteria

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Mortgage Lending:

As demand for buy-to-let mortgages has fallen in recent months, due mainly to a penalising tax regime for landlords, but also to a more stringent mortgage approvals regime, competition among mortgage lenders is hotting-up.

Lenders are looking at ways to ease the path for those landlords willing to invest, either with a new mortgage or on renewal. So, those landlords who have been anxious about securing finance may be able to relax a little.

This loosening of the purse strings comes in the wake of changes in the PRS industry: tax reforms which are focussing landlords’ attention on the importance of profit margins; tougher lending criteria; the introduction by government of stricter letting regulations; and more local authority licencing schemes, all of which are combining to professionalise the industry. The upshot is, it gives lenders confidence in those landlords that still want to participate.

Last year there was a fall in buy-to-let lending which led to a 4-year low according to figures produced by the Bank of England. Buy-to-let loans as a proportion of the total have dropped from 21.4 per cent to 12.7 per cent since 2016, thought to be due to a dropping out of “accidental” landlords (those letting their own homes out of necessity for short periods) and amateur landlords.

Lenders now perceive the market to be occupied by a reduced number of landlords; the more business savvy and experienced small-scale landlord who is aware of the risks involved and works to a professional standard. These landlords are risk averse, keeping loan to value rations at manageable levels.

Kent Reliance is one mortgage lender that says it has simplified the way it calculates affordability ratios, making the application process easier for landlords and Nat West has said it is increasing the number of buy-to-let properties that landlords are allowed to own, from 4 to 10. This will also include properties on a landlord’s books having mortgages with other lenders, and increasing the maximum value of total loans for a portfolio from £2 million to £3.5 million.

Lenders in any event will have to carefully assess those landlords with 4 or more properties in their portfolios, and will likely only grant mortgages if they are convinced that the landlord is successful and taking low manageable risks. Each property will be assessed on income yield in its own right, so just one underperforming property could stymie an application. The new MEES regulations could also present a problem after April if any property fails to meet the minimum “E” energy efficiency rating.

Sarah Taylor of Nat West Intermediary Solutions, the bank’s mortgage arm for brokers, has told The Times Newspaper:

“This important step will simplify our buy-to-let policies and means we can help a wider customer range.”

Aaron Strutt of Trinity Financial, a broker, also speaking to The Times Newspaper, said:

“There is a huge amount of competition in the buy-to-let market and lenders want to tempt landlords. There are not as many borrowers looking to buy investment properties at the moment, and this is unlikely to change until they get used to the regulatory and tax changes.”

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