Mortgage rates fall for BTL investors

Discussion in 'Mortgages' started by The Mortgage Broker, Aug 29, 2017.

  1. The Mortgage Broker

    The Mortgage Broker New Member Forum Partner

    With buy-to-let landlords being hit from all sides with changes that could affect their businesses, it is no major surprise to learn mortgage rates for BTL loans are dropping.

    The past three months have seen a drop of around 4% in the amount a buy-to-let mortgage might cost, according to Mortgage Brain. This figure applies to a two-year fixed deal with a loan-to-value of either 60% or 70%. This is great news for landlords who are looking to add one or more properties to their portfolio – especially ahead of more changes coming into force next month.

    Meanwhile, two-year tracker mortgages are down by 1% for a 60% LTV (loan to value) deal and 2% for a 70% LTV deal. Clearly, there are good deals to be had, and now may just be the best time to take advantage of them.

    Lenders to deliver on new Prudential Regulation Authority ruling from September

    September will see new requirements coming into force for lenders offering buy-to-let mortgages. Currently, many lenders when underwriting buy-to-let mortgages focus mainly on the rental income and value of the property they are lending against.

    With Phase 2 of the new PRA underwriting requirements, when considering applications from landlords with more than three mortgaged buy-to-let properties all lenders will have to collect and validate details regarding all the properties that the landlord has an interest in. This will include collecting information on property values, rental income, costs and mortgages.

    Not only will landlords need to pass a so-called stress test that is connected to changes in interest rates, they should also expect their entire property portfolio to be considered. This means a landlord with even one underperforming property could find it harder to get a BTL mortgage that would enable them to add another one to their portfolio.

    The BoE has asked lenders to take this approach because they want lenders to make sure that they fully understand the full financial circumstances of portfolio landlords and the impact any new lending will have on their finances.

    Where does the future lie for landlords?

    “It’s been a tough few months for buy-to-let landlords,” said Darren Pescod, CEO of The Mortgage Broker Ltd. “Changes in tax rules coupled with stamp duty rises have made the landscape much more dramatic for landlords. When you add in the tougher lending requirements due to hit from 30th September, it’s perhaps not surprising to see some landlords leaving the market altogether.

    “Others have switched to limited companies, and I suspect there are more who are biding their time to see what happens before making a move. Due to the increase in costs over the coming years, some Landlords have focused more on the higher yielding properties such as Student Lets/HMO properties.

    However, the fall in interest rates for BTL mortgage products is certainly a silver lining in a cloud-filled sky at present.”

    Could we see a short-term spike in buy-to-let mortgage lending?

    It’s possible. Lenders have seen business in this mortgage market dry up, hence the fall in rates to try and attract more customers. This means there are some great deals to be had at present. If landlords are looking to buy before the next raft of changes comes in, now would be the time to make it happen.

    No one knows whether buy-to-let mortgage lending will suffer another fall once those new rules come into force. However, there is a distinct chance it will. Only landlords with portfolios of properties will be affected. Since some have already been reducing their portfolios due to other changes in the marketplace, it seems likely there will be far fewer landlords taking advantage of the good deals.

    There has arguably never been a time when so many changes have occurred in this market. And with more on the horizon, who knows what the next headlines in this market will be?

    Hope this has been informative...
    Darren Pescod
  2. Longterminvestor

    Longterminvestor Administrator

    Another race to the bottom for BTL mortgage providers? Wafer thin margins will surely see some of the smaller players going to the wall?
  3. realdeals

    realdeals Active Member

    For those with a long term investment strategy surely now must be a good time to start looking at the BTL mortgage market again? Maybe even refinancing existing BTL mortgages taken out when rates were much higher?
  4. The Mortgage Broker

    The Mortgage Broker New Member Forum Partner

    I doubt it, you rarely see banks lose out. Some may make their money back on fees and other will hope that their borrowers will revert to their standard variable rates and make additional margin there - You will be surprised the % of people that don't change their rates upon renewal.
  5. The Mortgage Broker

    The Mortgage Broker New Member Forum Partner

    Well I would agree with you, but I am in the mortgage business and that's where we make our money. :)
  6. Veronica

    Veronica Administrator

    BTL should be charged higher mortgage rates. Lets give the young people a chance to buy their own homes at low rates for first time buyers instead of encouraging greedy landlords to keep lining their pockets at the expense of young people.
  7. The Mortgage Broker

    The Mortgage Broker New Member Forum Partner

    Hi Veronica,

    The government have started making this happen with higher stamp duties and higher tax for landlords which hurts most investors. We have already seen buy to let volumes drop quite significantly over the past 12 months.
  8. Longterminvestor

    Longterminvestor Administrator

    The UK government should have regulated the BTL mortgage at a much earlier stage. It got out of control, they saw investors making good money and now they want a slice of the action (more taxes). At the end of the day BTL investors are only servicing a market need in a free market.
  9. realdeals

    realdeals Active Member

    The banks do get it wrong as we saw in the 2008 economic collapse but between customers, investors and government bailouts, someone else always seems to pay the long term bill :)

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