Buy to Lets - PRA Rules, Over 55s, The Leek BS and Tiptons lower rates!

Hope you had a great summer.  I don’t think there was a lull in anyway shape or form in our sector as it remained incredibly busy throughout!  However, it still feels like it’s back to work with a bang in the mortgage world.  

We’ve seen many lenders release details regarding the Prudential Regulation Authority (PRA) changes, which come into effect on 30^th September.  In short, anyone who owns more than four Buy to Let properties will be classed as a professional landlord.  The new rules require lenders to assess applications using a specialist underwriting process, review and stress test the landlord’s whole portfolio, as well as the individual’s financial capability. This includes those held in a Limited Company name.  Lenders will be required to make sure you are not over exposed and any decision to lend will be made once the whole portfolio has been taken in to account.  Each lender will interpret the rules differently and many lenders have not yet confirmed how they will be looking to change things.   But you need to be aware that these rules are imminent and we expect some delays whilst the changes imbed themselves.

For the OVER 55s, there has been much focus recently on offering rates to those lending in to later life.  One such example is with Shawbrook Bank, who have lowered the fixed and variable rates on its 55 Plus interest-only product offerings.  Rates will now be available from 4.75% variable depending on circumstances and terms, available to age 85.

Our good friends at the Tipton Building Society have launched some exclusive products with rates starting from just 1.04%.  This includes free valuation and free legals on remortgages.  The lender also manually assesses everything, so even though the high street might have said no, there may be an option with a lender such as Tipton, assuming no adverse, and good income etc.

Finally, the Leek United Building Society have launched a First Time Buyer 95% mortgage, with a free valuation, free standard legal work in relation to the property purchase and no application fees.   Great for those with a small deposit looking for their first property and we must applaud the lender for trying to help a sector that is in dire need of innovation to help get people on the first rung of the property ladder. 

PRA Rules on the horizon, act now.

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.