The competition among mortgage lenders for landlords’ business has never been stronger: with the tax hikes against buy-to-let, and continuing uncertainty over Brexit, there are some bargain deals on the table.
Over recent months there’s been a fall-off in demand for buy-to-let mortgages, so those landlords seeking a mortgage right now have a wide choice. They can choose from some of the cheapest variable or long-term fixed-rate mortgages deals ever offered before.
In September, BTL mortgage approvals was 19 per cent down on the same month in 2017 the body that represents mortgage lenders, UK Finance.
It would seem that many of the mortgage lenders are falling over themselves to ease the path for landlords to borrow at competitive rates, despite the tougher lending regime. Under rules introduced in September 2017 by the Prudential Regulation Authority, landlords with four or more properties are classed as portfolio investors.
This new buy-to-let lending criteria means that lenders are required to look at a landlord’s whole property portfolio when making a lending decision for any single property. They look at the total income against borrowing across all the landlord’s properties, to make sure that any new borrowing won’t affect the affordability for the other properties, and in some cases individual earned income or salary is taken into account.
So rental income, related outgoings, rental profits, tax and business returns, plus other factors such as, are the properties meeting all the letting regulations, such as for energy efficiency standards? It all results in the landlord having to provide much more detailed information to the lender on the mortgage application.
However, given the new competition, which includes tradition banks, the building societies, and now the challenger banks entering the mortgage market, these strict rules are being interpreted more leniently.
Examples cited recently in an article in The Times, The Mortgage Works (Nationwide Building Society), a specialist mortgage lender, is softening the tests it applies to assess a landlord’s financial strength.
Borrowers must still show the rental income on the property is at least 125% of the mortgage costs (145% for higher earners), but the 5.5% target rate used to stress test for repayments is being relaxed for longer term commitments. In this case, for borrowers with minimum deposits of 25%, over 5 years, their 4.99% rate is reduced to 4.5%. With a 10-year deal, and minimum 65% deposit, it reduces from 4.99% to 4%, or the mortgage rate plus 0.75 points, whichever is higher.
Sainsbury’s Bank, The Bank or Ireland, Clydesdale Bank, Barclays, The Post Office, Virgin Money, Halifax, Kent Reliance, Kensington and others are all in a similar space with competitive deals as low as, for example, the discounted variable rate of a 1.14 per cent BTL mortgage offered by Leeds Building Society. This is available with a 40 per cent deposit, up to a maximum loan size of £500,000.
However, landlords need to be aware that some of these products come with high arrangement fees, though there are others through brokers with no fee – it pays to shop around.
David Hollingworth, a director of the mortgage broker London & Country, told The Times:
“This is a logical move [relaxing the rules]. Where landlords are locking in for a longer period, they should not be subject to the same expectations around rising rates because they have removed that risk by fixing. Landlords should still be sure to select a product because it is the right choice for their situation not just because it allows them to borrow more.”