More changes for Buy to Let - take professional advice

Have you looked at your mortgage requirements recently?  Do you own investment properties?  Do you know about the upcoming changes to EPCs?  Are you prepared for the changes to mortgage interest tax relief?

The Buy to Let sector has been through some interesting times and it always seems to be this area that is targeted when it comes to tax and regulatory changes.  That is why I always stipulate that any property investor should have a good set of experienced property professionals around them when it comes to advice and recommendations.

For the tax year 2019/2020, landlords will only be able to offset 25% of their mortgage interest for tax purposes.  In 2020/2021, all of a landlord’s gross rental income will be taxable and they will instead be given a reduction in their tax liability equivalent to 20% of their mortgage interest.

This has led to an increase in landlords transferring their portfolios in to a limited company structure with all future purchases being bought in the limited company name.  This should be carefully considered, and professional tax advice taken.

In addition, minimum energy efficiency standards (MEES) were introduced in April 2018.  The standards affected all new lets and tenancy renewals in the private rented sector to have a minimum energy performance rating of E.  From April 2020, this will also cover existing tenancies.   Landlords will be unable to rent properties until any works are done and the minimum rating is achieved.   It will be illegal to rent out a failing property and landlords can be fined up to £4,000 (unless the property is a listed building or holiday accommodation rented out for less than 4 months a year or let under a licence to occupy).

On the upside, the availability of Buy to Let mortgages is at it’s highest for some time with loans available up to 85% of the property value and five year fixed rate deals, with only three year redemption penalties recently being launched.  Terms and conditions obviously apply.

Taking in to account all of the above, it is more important than ever, to seek specialist Buy to Let mortgage advice along with the relevant tax advice from a property tax adviser.  This really is an area you can’t afford to get wrong as it could be very costly to rectify later on. 

Over 65? No problem!

Just because you’re over 65, it doesn’t mean you can’t have a mortgage!  But sometimes it can be harder to get a mortgage that is right and affordable, due to age restrictive terms, once you reach a certain milestone with the high street lenders.

Often, retired people have managed their finances successfully over the years and enter retirement mortgage free.  At the same time, many, whilst having no mortgage, also suffer from reduced income.  Others may wish to continue their mortgage past normal lender retirement age, whilst they may still be working.  There are schemes where equity can be turned into a mortgage (not necessarily equity release) and where off-spring may be able to assist with the repayments in order to secure and protect their inheritance whilst also ensuring a comfortable retirement for their parents.  This is not right for everyone, but it is certainly worth talking to a qualified adviser to review all possibilities.

According to some lender reports, there are an estimated 600,000 people due to come to maturity on their interest only mortgage by 2020, aged over 60.  Many will probably have no way of repaying their interest only mortgage.  Some will have endowments that didn’t meet expectations, or maybe the house has not increased in price as much as hoped.  Stricter mortgage rules and lending criteria has made it harder for those over 65 wanting to re-mortgage.  However, despite the high street being almost a closed entity, there are plenty of other options (not that your current lender is likely to advise them - they just want their money back!).

The lender has the right to request repayment of their loan at end of the mortgage term.  If the customer has no way of repaying this and has just continued to pay the interest over the last twenty-five years or so, they face the possibility of having their home repossessed or being forced to move out.  On the high street, the end of the loan term will normally hit those aged between 65 to 70.  This is not new news but does highlight that many people are still burying their head in the sand and hoping this will go away or the lender may be lenient.

There are a number of lenders that recognise that 'normal retirement' age is no longer set in stone and people continue to work long in to later life. These are not high street names and as such, rates may be slightly higher than the big super tanker, large volume producing household names that we are used to.  But at least they will consider helping out and could keep you in your family home!

Which type of property valuation is right for you?

On every property, the lender will require to know that they are lending money on a suitable property.  This will entail a valuation and normally a surveyor will vist the subject property.  This is a fairly basic valuation and is for the lender, paid for by the borrower, and it should not be relied upon as a guarantee that the property is sound and fit for purpose.  It only responds to the questions lenders ask relating to the property being suitable security for mortgage purposes.  They have no obligation to tell you what is in the report or give you a copy! 

In some cases, they will not actually visit.  This is because they can often access detailed information electronically, normally called an Automated Valuation Model (AVM), where a mathematical system calculates the property’s value based on a number of comparable properties and other in-depth calculations.  

Therefore, you should always consider the benefit of an independent survey on the property you are purchasing to ensure that any and all defects are noted before signing contracts. There are two main types of survey available, aside from the standard lender mortgage valuation.

Homebuyer Report - a standard format set out by the Royal Institution of Chartered Surveyors (RICS). This will not focus on every aspect of the property as a building survey will (below), but will advise on urgent matters needing attention. It may advise if items (a leaky roof for example) might have an adverse effect on the value of the property, or if further investigations are required.

A Building Survey – an in-depth survey for all properties: listed buildings: buildings that have had extensive alterations, or of an unusual construction. The surveyor will examine all accessible parts of the property and advise on technical information: the condition relative to age: further special investigations required, and provide extensive information on major or minor defects.

Both will comment on whether the agreed asking price is reasonable, whether it reflects the condition of the property and should give you peace of mind whilst making the biggest purchase of your life!

Finally, I’m always looking for content ideas.  So, if you have any burning questions or items you would like to see, please don’t be shy to ask!  You can email me at dale@impactsf.co.uk or call me on the number above.

Credit scoring is not right for everyone.

I haven't mentioned it for a while, but it certainly is causing a lot of customers an issue.  Credit scoring!  This is an assessment on all available financial information and calculates a 'score' for the lender.  It also includes a search on your overall credit history covering, in the main, all of your financial transactions over the last few years.

Most lenders credit score applications to try and assess your ability to repay any loans.  This will take in to account many factors including the amount of credit you have, whether you are on the electoral role, your recent payment profile on any existing credit and the number of recent credit searches you have on file.  Nearly all financial institutions will register a credit search against you.  So, if you have recently updated your car insurance, home insurance, taken out a mobile contract and just got a new credit/debit card, that’s probably four searches in a short amount of time!  Be wary that some 'comparison sites' may have also searched you just whilst seeking a new insurance quote.

If the lenders computer says ‘no’, you will tend to find most high street lenders doors shut to you.  But fear not, if you have a reasonable deposit and can prove all income, there are lenders who do not credit score, but will manually review and underwrite affordable applications on an individual basis. 

I always suggest that you speak to an independent mortgage broker with access to whole of market mortgages.  Banks may only advise on their product range. Estate Agents ‘in-house’ mortgage advisers may only be able to offer mortgages from a select panel of lenders. Therefore, in order to get best advice, make sure you do your homework, speak to a whole of market mortgage broker who can advise on the most appropriate mortgage in the market to meet your requirements, whether this be with a credit score or just a credit search.