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.
As always, I am happy to run through specific scenarios, so do get in touch. My direct line is 01732 471616.
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