Buy-to-Let Mortgage

Is the Buy-to-let mortgage sector witnessing a wholesale shift in respect of recent changes to minimum income criteria. Though this may be seen as a natural progression post pandemic. Late 2021 has seen Accord Mortgages join The Mortgage Works, Birmingham Midshires, Coventry Building Society and most recently NatWest in no minimum income requirements for landlords. Is this a progressive forward thinking move or a common sense  approach and what borrower profile is this aimed at. While there are a restricted number of high street lenders who may well see themselves as going out on a limb they are averse to the complex cases. The specialist lender will flourish as landlords and investors see opportunity to either increase their portfolio or venture in to HMO and Multi Let.

Buy-to-Let Mortgage criteria sees shift away from minimum income

This change in stance will be a shot in the arm to first time landlords and the self employed who have had their accounts in some disarray due to Covid. Lenders who have had a minimum Buy-to-Let Mortgage property portfolio may find an exodus to lenders who are embracing multi property portfolios. There are those consumers who are also holding on to the romantic anomaly of brand loyalty. Perhaps denied previously and had sought safe haven with their bank will now realise that, with no minimum income, the market is now very much more accessible. This shift in criteria will also invariably encourage innovative service and processing. This may well also change the fortunes of accidental landlords, those on lower incomes and the asset rich retired who also have a lump sum to invest.

Buy-to-Let Mortgage providers goodwill to landlords limited

While Accord and Nat West have aligned themselves to other lenders the question has to be why. Not allowing for other high street lenders to adapt to the Buy-to-Let Mortgage sector this can only make the market more competitive. The advent of this more competitive business model will also disrupt current anticipated business levels. In turn this may well see a knock on effect of further tweaks in criteria from more established Buy-to-Let Mortgage lenders. Thus seeing more attractive products finding their way to market. Some high street banks have dipped their toe in the water but no more than to evaluate growth opportunities.

Buy-to-Let mortgage rates remain competitive

UK home ownership fell between 2007 (73.3%) through 2018 (65.2%) though 2016 was the lowest at 63.4%. The Buy-to-Let Mortgage has doubled it’s market share to 20% over a 20 year period. The Private Rental Sector has increased it’s market share though it regressed in 2020. Gross Buy-to-Let mortgage lending declined by around 12% in 2020 due to Covid. Since February 2009 interest rates have remained at sub 1% also encouraging further Buy-to-Let mortgage activity. Rent levels are holding up well despite the recent bar on evictions which ended in May this year. In recent months 100,000 families had either fallen in to rental arrears or received eviction notices. However warnings that renters were in for a bumpy ride were already being muted in 2018. Prospective renters rose by 18% while rental property fell by 8% fuelling a major UK housing problem.

Buy-to-let tax relief seen as a deterrent

Part of the problem seen with the disparity between supply and demand was rising taxes. This was also seen as forcing established long term landlords from the market deterring entry to the sector. Buy-to-Let MortgageLenders in the past have also tended to draw up the financial drawbridge to restrict loans perhaps unfairly. Though recently to compound this landlords have foregone rent for the best part of a year and Buy-to-let mortgage providers goodwill only stretches so far. It is anticipated that the lost rental revenue will translate in to an uncertain future imminently. Either a lender possession order and/or capitalisation of arrears which will mean higher monthly buy-to-let mortgage payments.

While HMO properties have seen increased popularity due to higher yields it must also correlate to higher losses. Asides from the more onerous tax implications imposed by HMRC landlords also have to wrestle with increased bureaucracy. From 1st October 2018, any property in England or Wales let to five or more tenants from two or more households requires a house-in-multiple-occupation HMO License. These licences, depending on local authority, cost around £500 a property. In May 2015 the government announced the Government’s intention to crack down on poorly maintained and managed HMOs. Though mandatory licensing had already applied to some properties since 2015.

Furthermore The Housing Act 1988 imposed new restrictive section 21 assured shorthold eviction notice rules. These rules applied to tenancies from 1 October 2015. Also, in difficult times the best of tenants may lose their jobs and have to apply for housing benefit welfare to pay their rent and this may involve some rent delay. But once this is in place it should make rent more secure. Some local authorities in England will consider paying a landlord directly where there is evidence that the tenant is unlikely to pay their rent. Where arrears of benefit have reached 8 weeks, the local authority is more likely to agree to make direct payments. However conversely ‘unless it is not in the tenant’s overriding interests to do so’.

If you are thinking of renting out for the first time a house that has an existing mortgage and/or insurance, then you should tell the mortgage company and/or insurance company. If you do not then you risk the mortgage and/or the insurance (invalidate). Some mortgage lenders and insurers will allow you to remain on the same rates, but others may want to switch you onto their buy-to-let mortgage rates (which may be somewhat higher). However a buy to let and/or HMO mortgage is a higher risk than a residential mortgage. Given that banks and building societies currently pay very little interest buy-to-let and HMO property investing remain a viable option.