Mortgages

Buy To Let Mortgages

This case study accurately summarises buy to let (BTL) mortgages are harder to come by with lending criteria much more complex since the start of the year. Here at Westminster Wealth we are a whole of market mortgage brokerage. We have access to all 15 main buy to let lenders plus additional niche lenders offering a wide range of competitive rates with different stress test rental calculations and affordability checks. I've heard it described as a minefield which is probably a fair reflection.  

Arranging a buy to let mortgage can often be more complicated than arranging a residential mortgage so brokers really do add value when advising existing and new landlords.

Most types of buy to let mortgages are still not regulated by the Financial Conduct Authority. I have stated before I believe they should be to provide consumer protection parity with residential mortgages. Most good mortgage brokers have embraced the latest criteria changes resulting in the vast majority of BTL mortgages being arranged through this channel.

There are more changes to BTL lending later this year whereby if a landlord already has 4 or more mortgages the underwriting is even more complex and time consuming.

A reasonable broker fee for good professional advice and service is a price worth paying.

Your home may be repossessed if you do not keep up repayments on your mortgage. Our charges are usually between £395 and £995 depending on the type and amount of borrowing required and individual circumstances.

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Property Prices Regain Momentum

Depending on where you live, our national pastime to discuss property prices at dinner parties may be a bit more bullish based on the June 2017 report from Nationwide Building Society.  However, whilst prices are still increasing in many areas of the country albeit at a slower pace than a year ago, London appears to be suffering a fairly sharp slowdown. Some would argue a  correction in the Capital is long overdue.

So where does that leave us? Is now a good time to buy or indeed sell? This could be a major conundrum over the next couple of years for buyers and sellers as Brexit negotiations play out and the Government implement their manifesto.

Having been a Mortgage Broker for nearly two decades I can recall back in 2006/7 saying to colleagues my gut feel was that annual property price increases circa 10%  were unsustainable in the medium to long term. And along came the 2008/09 credit crunch.

If we are now experiencing a market change, it feels different this time around.  Hopefully more a period of sensible price fluctuations rather than another crash. After all, we are an island with limited space and dwellings.  With our population levels, the law of supply and demand will always play it's part. Now where's the cheese board?

Your home may be repossessed if you do not keep up repayments on your mortgage.

Our charges are usually between £395 and £995 depending on the type and amount of borrowing required and individual circumstances.

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Educating Mortgage Borrowers Never Ends

These headline figures are staggering and emphasise the need for ongoing consumer education.

However, when I see this type of analysis I do wonder if geography is also a factor.

In London and South East where average mortgages are the largest in the UK I would be surprised if there are vast swathes of borrowers sitting on their lenders' Standard Variable Rate. (SVR)

Some lenders also have SVR's that track the Bank of England Base Rate (currently 0.25%) thus there could be justifiable circumstances for a borrower to remain on their existing lender's SVR. Additionally, there could be an intention to pay off the mortgage in the short term which would preclude locking into a fixed rate.

There is currently increased speculation that interest rates could be on the rise. Lenders, Mortgage Brokers, Consumer and Government bodies all have a role to play to educate borrowers to regularly review their current mortgage rate.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Our charges are usually between £395 and £995 depending on the type and amount of borrowing required and individual circumstances.

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First Time Buyers Caveat Emptor

It's not often Latin phrases can be used in the property and mortgage world but caveat emptor (buyer beware) adequately sums up how First Time Buyers (FTBs) should approach 5% deposit mortgages.

With property price increases generally slowing, and in some areas going into stagnation/reverse, a 95% mortgage needs to be carefully thought through within the excitement of being able to get a foot on the property ladder.

I advise FTBs with small deposits to consult relevant property owing family members who can recall the ups and downs of the market. Often they can be the donors of the deposit anyway. The acting Conveyancer also has an obligation to highlight potential pitfalls. With Estate Agents generally focusing on the upside, some cool calm thinking should pay dividends in the long run.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Our charges are usually between £395 and £995 depending on the type and amount of borrowing required and individual circumstances.

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Mortgage Prisoner Explosion

This article really highlights the importance of having a solid financial plan that you review regularly. The million or so people that could become mortgage prisoners should have received proper advice when they took out the mortgage. Many of my clients have mortgage strategies where we focus on overpaying the mortgage to meet key criteria when re-mortgaging 2/3/5 years down the line. We need to break the sell and forget mentality.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Our charges are usually between £395 and £995 depending on the type and amount of borrowing required and individual circumstances.

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Fixed Rate Mortgage Boost for Landlords

With Buy to Let (BTL) mortgage lending down 50% since April 2016 there is an argument that Landlords could certainly do with a boost. (Patrick Collinson, The Guardian, 22nd April 2017)

We have now come through the initial bedding in period since the Prudential Regulation Authority (PRA) stipulated from January 2017 BTL Lenders must use new higher stress test calculations to restrict what they can lend to first time and experienced landlords.  This is on top of the 3% Stamp Duty levy introduced in April 2016 and a more penal method of calculating income tax due on rental income from April 2017. Is it any wonder new and existing Landlords have been ‘running to the hills’?

Whilst it may not feel like it to consumers, most aspects of BTL lending are still not regulated by the Financial Conduct Authority (FCA). The complications of arranging a BTL mortgage are now on par with a Residential mortgage. In my opinion we should have gone the ‘whole nine yards’ and regulated BTL when the new PRA requirements were introduced at the beginning of the year.

It’s encouraging to see BTL lenders now being able to apply a more flexible approach to lending limits if the consumer takes out a 5 year fixed rate.  This is common sense as the mortgage payment, which is usually interest only for BTL, is fixed for 5 years and normally comes with a redemption penalty for the period.  This should help Landlords who are serious about ‘bricks and mortar’ assets and in turn benefit Tenants as the scope for rents increasing lessens as the landlord has budgetary certainty for the fixed rate period.  Could fixed rent Tenancy agreements for 5 years with fair break clauses become the norm?

With much additional noise coming from the various political parties about security of Tenure for Tenants in good quality accommodation, the BTL market is evolving.  As the vast majority of BTL lending is arranged by Mortgage Brokers, as an industry we have a vital role play to keep abreast of changes and educate consumers.

Your home will be repossessed if you do not keep up repayments on your mortgage.

The Financial Conduct Authority does not regulate retail Buy to Lets, commercial loans and overseas mortgages.

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