08 December 2016
Amazingly, this is my last column of the year. I cannot believe where 2016 has gone. So much has happened and I've enjoyed writing about it, especially with regards to the mortgage world's good and bad!
2016 has been a funny old year. Not only have we had the impact of new mortgage rules from the European Credit Directive…..we then decide to leave
Europe! As if
that's not enough, the PRA rules restrictions have been hanging over our heads
most of the year and will impact the Buy to Let sector from January 2017.
First Time Buyers are still yet to get the true help they need and I think that
failing to adjust the Stamp Duty was a missed opportunity in the recent budget
Housing shortages are never far away from the headlines, but actually a lot more people have looked at development and expansion this year. Looking at old office blocks and converting them in to flats, or changing a large house in to two or three self contained units. Maximising rental yields and opportunities.
The really positive news is the number of new lenders who have launched this year. A sign of the times and that funding is a lot easier to achieve compared to recent years. This has also bought in rate price wars and this can only be a good thing for the end consumer and keeps competition rife.
Despite many pundits saying it will be a flat market next year, I'm upbeat for 2017. I think it will be a positive year and one we can look at that will offer so many opportunities to those looking in the right places for properties as well as funding.
Finally, a heartfelt thank you for reading my weekly columns. I've tried to provide an unbiased insight to what happens in the mortgage world (and tried to keep it upbeat!). But I will now enjoy a couple of weeks without a production deadline to meet!
Thank you to everyone who has instructed AToM to source and arrange their mortgage during the past twelve months. It has been a fantastic year and we have enjoyed substantial growth in volume, averaging over £30m in new applications each month. Also, a good increase in headcount in the AToM team located between our two Horsham offices (soon to be three!). They are a truly an awesome and knowledgeable team.
On behalf of all the staff and directors at AToM, we wish you and your families a very Happy Christmas and a Relaxing and Prosperous New Year!
01 December 2016
If you haven't heard the term 'PRA rules', this is one you might hear a lot more of as we come to the end of the year, especially if you have Buy to Lets. The reason behind this is that the Prudential Regulation Authority (PRA) work alongside the Financial Conduct Authority (FCA) with regards to the regulation and supervision of Banks, Building Societies, etc. The PRA’s actions are intended to bring all lenders up to prevailing market standards during a period in which firms’ growth plans could be challenged by the changing economic landscape and the impact of forthcoming tax changes. The new rules were released in September and come in to play on January 1st 2017.
So, what does this mean? One specific rule change relates to the way a lender calculates the loan available on a Buy to Let mortgage. Normally, this is calculated with the monthly rental income needing to achieve 125% of the mortgage payment, at a nominal interest rate, normally circa 5%.
The new rules instruct the lender to use new underwriting standards, which use a stress interest rate of 5.50%, for the first five years of the loan. This makes a big difference.
Today we can achieve a calculation of 125% of 3.49%. Therefore, if we take a £1,000 a month rental payment, this would work out as a loan of £275k.
On the new rules, some lenders will be calculating 145% of 5.50%, which would work out as a loan of just £150k. An achievable loan of £125k less!
With deadlines looming, there is some quite serious competition in the Buy to Let sector to achieve business before the changes and some rates can make a huge difference in the amount of mortgage loan achievable, as demonstrated above. Terms and conditions obviously apply.
The PRA has clarified that holiday lets, bridging loans, property investment lending and corporate lending are all exempt from the new underwriting standards.
Finally, it doesn't matter whether you an experienced landlord, or this is your first time. Property ownership can be complicated, as can the calculation of loans achievable. Explore all the options available to you. With the recent taxation changes to Buy to Lets, make sure you understand everything at the outset so you don't regret it later! Always seek professional advice.