With recent changes in the buy-to-let (BTL) market, it could prove beneficial to conduct a regular review of your existing mortgage costs, to ensure that you maximise the return on your rental portfolio.
Richard Merrett, Technical Director at London’s mortgage broker Alexander Hall, gives an update on the impact of recent regulations on both the market and BTL mortgage lenders.
So, what’s the latest on the BTL market?
Richard: Over recent months, the BTL market has seen the much-publicised income tax changes and the introduction of the additional Stamp Duty Land Tax (SDLT) surcharge of 3% for second homes from 1st April 2016. We have also seen the Prudential Regulation Authority (PRA) issue a consultation paper on underwriting standards in the BTL market which has three core items that mortgage lenders should give consideration to before agreeing a loan:
- The mortgage costs as well as other property costs
- “Stress testing” to assess the potential impact of rate rises
- Should the client be a “portfolio landlord”, an appropriately tailored assessment is applied
Can you summarise the impact of these changes for both the landlords and the mortgage lenders?
"A number of BTL mortgage lenders revised their lending criteria"
Richard: Essentially, these can be best summarised by the overall maxim of “only lending to those who can afford it”. Parallels could be drawn with the 2014 Mortgage Market Review in the residential mortgage sector, which focused on improving professional standards.
The most notable impact of both the tax changes and lenders’ interpretations of the proposed regulatory change has been that a number of BTL mortgage lenders revised their lending criteria and in many cases increased their rental stress test requirements.
What should landlords consider?
Richard: Whilst the direction of lender criteria can potentially make it seem more difficult for some landlords to borrow, there are also a number of very positive changes in the market.
For example, with the increased competition in the market, many lenders are reducing their BTL rates, some by as much as 0.5%. Some lenders have also introduced criteria that considers a landlord’s personal income on an affordability basis, meaning there is more flexibility in instances where there is a perceived shortfall in rental yield.
"Second Charge mortgage options have also become more competitive"
More lenders are now providing improved solutions for clients wishing to structure their purchase within a Limited Company, increasing the options available.
Second Charge mortgage options have also become more competitive, meaning there is potentially the option to release equity for home improvements or purchase a new investment property.
I would see a by-product of this review as the increased emphasis on the importance of professional mortgage advice and access to a wider range of lenders and therefore mortgage options. This, in turn, offers a greater potential for flexibility around the requirements of your BTL mortgage and ensuring that the return on your rental portfolio is maximised.
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For more information on your buy-to-let mortgage options, get in touch with Richard and his team at Alexander Hall on 0800 038 3736 or visit alexanderhall.co.uk.
