Buy to Let takes a hit

The Buy to Let market has been hit hard this week as two of the major players make significant changes to their criteria.

BM Solutions (part of the Lloyds Banking Group) have withdrawn their House to House product.  What does this mean?  Well, the majority of investment mortgages, or better known as Buy to Lets work on a required rental calculation.  Most use a 125% rule.  Therefore the rental payment must be 125% of the monthly mortgage payment, usually based on the actual interest pay rate.  If the rental payment was short in calculation, then the loan offered would be reduced to fit.

The now defunct House to House product ignored this requirement and looked at the Buy to Let using the customer’s income and expenditure.  It was one of the only products in the market that offered this option and was incredibly useful for properties where rental coverage did not cover the mortgage payments by the required rental calculation.  The lender would consider the customers income when considering loan amounts.

The Mortgage Works (part of Nationwide) have also made a number of changes to their Buy to Let offerings.  These include the withdrawal of their regulated Buy to Let offering.   A regulated Buy to Let is where a sizeable portion of the property is rented out to a family member.  They have also withdrawn the option for clients to buy a property from a relative. 

With property prices still low, First Time Buyers struggling to get on the property ladder and returns on savings still relatively unattractive, many have invested in property as a long term investment.  This area of the mortgage market has been buoyant and as such, many lenders are incurring service issues.  So these are substantial moves by two major lenders begging the question if this is the start of more negative things to come?   Let’s hope not!

Lenders are showing an appetite to lend!

2011 has started with a bang! The Bank of China have reduced their Residential Life Time Tracker rate to just 1.80% above the Bank of England Base Rate. Currently, the pay rate is 2.30% (APR 2.50%). This is available to home movers, those re-mortgaging and also to First Time Buyers, up to a maximum loan of 80% of the property value. A very good rate and a positive step forward from this lender.

BM Solutions, part of the Lloyds Banking Group, have launched some fixed rate Buy to Let mortgages with arrangement fees of just 1.5%. Compared to some in the market, the fees alone might save up to 2% in costs! Many believe the Buy to Let / Investment property market will boom in 2011.

However, with regards to fixed rates, we’ve seen some lenders already increasing their product rate offerings. Whether ‘to fix or not to fix’ your mortgage rate, will be an ongoing debate throughout 2011.

Lenders are showing an appetite to lend. One lender on the AToM panel has allocated a tranche of £10m in funding to be distributed in January. This is great news for the market and in addition, this lender does not credit score. So if a high street lender has declined your application due to a low credit score, or because you don’t fit their particular requirements, you may be exactly the type of customer our lender is looking for. However, please note that they are not looking for those who have had previous credit issues.

Finally, First Time Buyers are likely to be in need of most support throughout 2011. So far, there have been some small glimmers of hope with a couple of lenders revamping their 90% loan to value products, so requiring just a 10% deposit but this is still not enough! The interest rates are relatively high and as such the monthly payments on this type of mortgage won’t be attractive to many prospective borrowers. Those with a higher deposit will attract a lower interest rate. But in current climates, that tends to be difficult to achieve. More still needs to be done to help first timers get onto the property ladder and I hope that lenders take action to assist. Sooner, rather than later.