The landlord and property investor community understandably has a lot of questions during this time. We’ve tried to answer as many as possible submitted for our Investing in the “New Normal” online event, to help you make informed property investment decisions during this time.
I have two buy to let properties and understand interest rates are higher on your fourth and then tenth property. For my third should I lock in a five-year fixed to take advantage of low rates?
Securing a competitive buy to let mortgage rate is always important, and I can see your thought process here.
Firstly, while there are some buy to let lenders that will not accept applications from landlords with four or more properties, the majority will lend to those with up to ten buy to let investments. Secondly, in order to decide how long to fix a mortgage rate for, there are a few things to consider. What you plan to do with the property: sell it, raise capital against it to purchase more or continue renting it out. What you think buy to let mortgage rates are going to do over the next few years is also worth thinking about; at the moment they can’t get much lower, so we are expecting them to rise. One aspect people often overlook is, does the lender have a competitive product transfer offering, to make remortgaging even easier?
Five-year fixed rates are very popular with landlords (and home-owners) at the moment, especially as rates are so low. The cost of remortgaging fees, every couple of years, can reduce any savings on the interest rate you may make with a shorter fixed term. Our team of brokers can help you work out the overall cost of a mortgage to help you decide what’s best for you and your investment plans.
What are the differences in a five-year fixed rate bought personally vs a limited company?
At the moment, you are looking at a price difference of around 1.33%. This can vary depending on the loan to value, landlord profile, property type and the cost of any setup fees.
Do we have a better idea of when the anticipated slump in the market will start to materialise and will this just be London or other more civilised parts such as North West etc. How long will it last?
At the moment, the housing market seems to be holding its own in terms of pricing, with average prices still higher than this time last year. However, there is still a concern that from October (when the furlough scheme runs off) there will be a spike in unemployment, and this could then have a negative effect on the market.
I don’t expect these issues to be limited to just London, but I do think that certain areas will be more affected than others. If there are lots of redundancies from a large regional employer, then this will have a more significant effect on the surrounding local economy and property market. The good news is that any dips in house prices are predicted to recover quickly; probably by the end of 2020/21.
How are buy to let lenders treating applications from landlords that have taken payment holidays?
Many buy to let lenders are treating new applications from landlords who have taken a mortgage payment holiday with caution. This is because by taking a payment holiday you are saying that you cannot meet your mortgage payment, despite affordability calculations usually factoring in tenant void periods. Lenders are, therefore, looking to gain a greater understanding of your financial situation to make sure you are not in any financial difficulty before taking on more debt. For more information on what individual lenders are doing, read our in-depth review here.
Property prices have inevitable decreased slightly due to Covid-19. Do you think there will be a reluctance from mortgage providers to lend at the new “temporary” lower % rates as they will want the market to stabilise before they offer customers low % products?
Currently, all 85% LTV products for BTL mortgages remain withdrawn from sale, but some lenders are offering up to 80%. While lenders will be watching the housing market with caution, the reduction in LTV has also been a business level management strategy for many to make sure they can process applications despite any current staff reductions and valuation restrictions.
What are your opinions of Fintech and AI within the industry?
I think the mortgage industry is due an overhaul in terms of process, and tech solutions are already making a real impact on lenders processing. Open banking, as an example, has demonstrated how mortgage application processing times can be significantly improved. However, I think there are a few points to note here.
Firstly, not all borrowers trust technology and don’t like the idea of, for example, a lender accessing their bank account. Therefore, I’m not sure that the borrowers are necessarily ready for a significant process change.
Secondly, I am not convinced that there is yet an algorithm which can adequately cope with the many complexities of lender requirements and borrower’s unique situations. At Mortgages for Business, like every other broker, we use mortgage sourcing software and yet on many occasions either the data is outdated due to the rapid nature that products can change, or we need to call a lender to talk through the granular detail of an application, particularly for more complex cases. I think that while online broking (where no human touches the sourcing of a mortgage) is appropriate for some simple applications, it is not yet the answer for all. Technology develops very fast, however, so who knows so soon it will be advanced enough to cope with more complex buy to let mortgage needs?
The mortgage industry is at the start of its tech journey, and I am excited to see how things progress from here, but I do not believe that the whole process could be automated for every person. We do not want all lenders to work from a yes/no binary approach; we need lenders to be able to work with shades of grey which may not fit into an algorithm, as to do so would significantly constrict the market. Every mortgage application is different and should be treated as so.
Where is the buy to let market heading in the long-term, i.e ten years from now?
Looking at the UK property market as a whole, I believe that homeownership will continue to become less important for our younger generations, resulting in a continued increase in rental demand. I also think that co-living will become more popular and that, as working from home becomes more of a norm, the need to live in city centres will decrease. From talk within the industry, we are expecting further regulation on minimum property standards for every buy to let property, not just HMOs and also licencing for every landlord. While this will likely create a bit of extra paperwork, these regulations are sensible and not punitive and will hopefully help drive a more professional industry with good quality, in-demand property stock, and should therefore not be feared.
Where are the best geographical regions for investing in a buy to let property?
This really depends on what you are looking to achieve – yield or capital growth. Yields are particularly strong in the North East for example, but the capital growth here is lower than the South East, which has weaker yields. We regularly talk about house price movement and rental yields in our weekly investor update MFB News vlogs, so that would be an excellent way to keep up to date with this particular issue (and more).
I am seeing more businesses are reviewing their office space requirements and where possible, giving up leases on their commercial space. How do you see this impacting the residential buy to let market?
I believe we will see a shift in terms of where people look to live. As more of us are required to go into the office less and therefore spend less time commuting, people will look to live further out from large towns and cities to maximise their access to green spaces.
What are the maximum LTV mortgages available from lenders?
In the buy to let space, 80%. In the residential market, 90%.
How quickly can solicitors complete legal work in this crisis for purchase of the house?
There is no real impact on the solicitor’s process times, and we are seeing completions happen in the same amount of time as pre-COVID from a legal perspective, which is great news!
What impact has COVID-19 had on valuations, LTVs and mortgage rates?
Valuations seem to be holding steady at the moment, as valuers place values based on comparable sale prices of similar properties. Since there haven’t been many sales during the last few months of lockdown, the most recent data they are using is from before COVID-19 stopped everything. Furthermore, the bounce-back of sales since property viewings resumed has helped keep prices stable. LTVs in the buy to let market have been scaled back to a maximum of 80% for now while rates for vanilla properties have remained relatively static, with just some increases in the specialist end mainly due to funding costs.
How do you see inner London flats faring long term? Will house-sharing still be in demand from young professionals?
I think that inner London flats may see demand tempered, at least for the near term. As mentioned above, as more of us work from home regularly, those who live in London for the commuting convenience alone may start to look elsewhere. However, there are plenty of people who love living in cities for the lifestyle and/or because it’s where they grew up, and this is unlikely to change.
I think house shares will remain an attractive option as it is lower cost accommodation. Interestingly, reports show an increase in enquiries for house shares during lockdown as many who lived alone were looking to join a household.
When is a good time invest in buy to let during this pandemic?
House prices are going to do one of two things: go up or go down and then up. Either way, experts predict that the latter will have concluded by mid-2021, so the next year or so is probably a good window.
Do you see more hardships or improvements coming for portfolio landlords, especially in terms of lower interest rates for landlords who have more than 10 properties and generally more lenders accepting applications from portfolio landlords owning more than 10 properties?
I think that there is not going to be much change going forwards. The lending community is in a fairly comfortable position in terms of its borrower profile and appetite to lend to those with a larger portfolio. Whilst there may be a tweak here and there, I don’t expect anything dramatic to happen.
Can bounce back loans be used as deposits?
I am afraid that lenders are not accepting bounce back loans as deposits.
I want to ask the panel if they can advise what I should include or cover during due diligence in purchasing a new buy to let property?
There are many things to consider when purchasing a property, particularly whether it is going to be a good investment. From a mortgage perspective, it is worth understanding the legalities around the property (lease length, any restrictive covenants, EPC rating, planning permission, cladding deemed as safe etc).
My advice to clients is always to give us a call when they find a property of interest, so we can do a sense check to ensure that a mortgage will be possible before they invest too much time and any money on pursuing it!
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1st July 2020