Buy to let borrowing: Landlords must act now
Buy to let mortgage lending figures for 2017 are out. Gavin looks at their impact on the market and predicts how landlords and lenders will react over the next few months.
UK Finance has finally revealed year-end lending figures confirming that purchases and remortgages in the buy to let mortgage market in 2017 totalled £34.9bn. Add in further advances and we have a 2017 total buy to let lending figure of £35.8bn - down nearly 11% on the previous year.
This brings buy to let down to less than 14% of overall lending, demonstrating that the levers put in place to “level the playing field” are working. Here at Mortgages for Business we are predicting a further fall in 2018 as the market becomes more specialised and it would not surprise us to see a further 10-11% reduction this year with a final figure of around £31bn. Time will tell….
Increasing buy to let remortgage activity
The market is expecting an upturn in remortgage business over the next few months as those landlords who rushed to complete purchases running up to the Stamp Duty deadline in March 2016 come to the end of their initial deals. Many landlords locked into low-cost 2-year products at that time and now should be looking at their refinance options.
In fact, any landlord contemplating refinancing should act now as I firmly believe that we have now seen the bottom of the market on pricing.
Buy to let rates on the rise
Over the coming weeks we will start to see mortgage pricing creeping up. This week already, we have seen The Mortgage Works launch an extremely competitive 5-year fixed rate at 1.99% (4.8% APR)* with a flat arrangement fee of £1,995. Available to personal buy to let borrowers only at 50% LTV, this product will attract many landlords looking to fix for the medium term. It’s certainly a buy to let rate that cannot be ignored, and I don’t imagine it will be about for long.
Over the past few weeks we have seen swap rates increase with 5-year swaps now at 1.39% - up over 50% in the past six months. Markets are factoring in the Bank of England’s guidance that Bank Rate is likely to increase in May and that they might rise again before the year is out. Add to this the end of the Term Funding Scheme for lenders, which provided access to cheap finance post the Brexit vote, and you can start to see why rates can only be going one way.
Act now to secure a good rate
I repeat, if you are looking to refinance or indeed looking to purchase a buy to let property in the next six months, you should be speaking to a broker and submitting an application now to lock into current pricing.
Ltd company buy to let mortgages
In other news, we are seeing an increasing number of landlords seeking accountants’ advice on incorporation and purchasing future properties in a Ltd company capacity. We continue to recommend that landlords seek tax advice when looking to structure their next transaction and we are here to help with all types of mortgage applications. Five year fixed rates for Ltd companies remain popular and range from around 3.25% to 4.5%, Again these are only likely to go one way.
Portfolio landlords
Lenders are still getting to grips with the new rules for underwriting applications from portfolio landlords. Those applicants with four or more mortgaged buy to let properties are now subject to more robust underwriting with lenders now reviewing the landlord's background portfolio, verifying values and applying stress tests to the whole portfolio. This has added a few days to the application process and some applications are being declined where the background portfolio is perceived to be under pressure. We will see more of this and it is another reason why I feel the buy to let lending numbers will be subdued again this year.
For further details on any of the points mentioned above please give us a call today on 0345 345 6788.
You may also be interested in:
Property Portfolio Spreadsheet
A downloadable form designed to capture all the residential property portfolio information lenders will require to assess a buy to let mortgage or remortgage application from landlords with four or more mortgaged properties.
>> Download
Limited Company FAQ Sheet
Frequently asked questions on limited company borrowing for buy to let mortgages.
>> Download
Stamp Duty FAQ Sheet
Frequently asked questions on Stamp Duty Land Tax
>> Download
*Fixed at 1.99% for 5 years reverting to Lenders Standard Variable Rate(currently, 4.49%, variable). Purchase & Remortgage applications. Early Repayment Charge: 6% year 1, 5% Year 2, 4% Year 3, 3% Year 4, 2% Year 5. Overall Cost for Comparison: 3.9% APR. Loan to Value: 50% loan to value to £1,500,000. Lender Arrangement Fee: £1,995. Broker Fee: Our standard broker fee is due on receipt of an Agreement in Principle from the lender, charged at £497 for personal applications and £597 for applications made by limited companies. We will keep any commission payments made by the lender. Alternatively, we will rebate to you any commission paid by the lender to us and charge you a broker fee of typically 1% of the total loan amount (exact percentage will depend upon the size and complexity of the mortgage application). Repayment Options: Interest only or repayment. Rent to Interest Cover: Basic Rate tax payer - 125% @ 4.99% Higher rate tax payer - 145% @ 4.99%.
20th February 2018
