It is now just over a month since the changes to affordability checks, and in particular the stricter rent to interest calculations, were introduced by the Prudential Regulation Authority. But has much changed? Paul Martins, consultant mortgage broker, investigates.
Do lenders still want to lend on buy to let property?
Most certainly. Contrary to what you may have read the buy to let market is still very strong with some 30+ lenders still vying for your business. Circa 15 of these offer finance to limited companies as well as individual borrowers.
Have lenders tightened their other underwriting requirements since the affordability changes were introduced?
No, not that I have seen. In general, the lenders’ underwriting requirements have stayed the same. This means that all borrowers will still be asked to supply confirmation of income, proof of identity/proof of address and three months’ bank statements, etc. when applying for a buy to let mortgage.
Do lenders still have an appetite for a variety of properties?
Yes. Of course, vanilla properties (such as your traditional two-up-two-down) continue to attract the headline rates but some landlords are now starting to diversify into more complex properties such as Houses of Multiple occupation (HMO’s), multi-units (i.e. blocks of flats owned on a single freehold title), semi-commercial property (shop ground floor/flat above) to name but a few.
Experience in running these more complex properties is generally sought or a good history of buy to let ownership although we do have access to lenders that may take a view on this.
Can borrowers still borrow personally?
Yes but the market is generally seeing a significant shift towards landlords borrowing via a limited company structure, especially for new purchases. The most recent data from our Complex Buy to Let Index shows that 69% of purchase applications in the final quarter of 2016 were made using companies.
The reason this is happening is due to the stricter changes to income tax relief on mortgage interest for personal borrowers and more favourable rental coverage requirements available within a corporate structure meaning higher loan to values than borrowing in a personal capacity.
However, I am not a tax specialist so do make sure you take professional advice.
When borrowing personally is there any flexibility on the tougher rental calculations?
Yes, lenders rental coverage requirements can be reduced if you are prepared to fix your buy to let mortgage for five years. The rental coverage requirements for these products are a lot more favourable which should fit most borrowing requirements up to 75% loan to value.
Paul Martins has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the BTL Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.
You may also be interested in:
Common areas of concern when borrowing via a limited company for buy to let
Many landlords are now becoming more comfortable with buy to let borrowing via a limited company including the few additional hurdles this brings. However there is still a perception that the process is complicated and harder to get agreed but this is not always the case...
FAQs on Ltd Co borrowing for buy to let
Frequently asked questions on limited company borrowing for buy to let mortgages.
Housing White Paper highlights need to improve safeguards in private rented sector
Admitting that the UK housing market is ‘broken’, the Government’s new Housing White Paper sets out a series of initiatives to support and diversify the housing market in order to create the type of homes that people can afford and in places they want to live.
What can we expect from mortgage rates in 2017?
In 2016 we were lucky enough to witness the lowest mortgage rates we have ever seen. Will this trend continue in 2017 or will prices start to rise? Erin Gallacher, consultant mortgage broker offers her opinion.
How the new buy to let underwriting standards will affect lenders and borrowers
Steve gives his views on what the implications of tougher interest cover ratios and increased background checks will mean for landlords and buy to let lenders.
14th February 2017