New entrants to the Buy to Let market!

With the rental market continuing to be buoyant, and with no signs of declining, the mortgage market is active as lenders recognise the huge demand for Buy to Let (investment property) mortgages.   These can be from a first time landlord, right through to the experienced House of Multiple Occupation (HMO) / Student Let portfolio investor.   Deposit requirements can be as low as just 15% and as this sector has also recently been through a price war, rates are competitive (some now sub 2%) and may also come with packaged deals, such as free valuation and free legal costs.

But with so many lenders now in this sector, rates may not remain the main area of competition for much longer! Some lenders are also reviewing criteria in order to attract new business.  Many lenders historically would not allow first time landlords, anyone earning an income less than £25k per annum, those who have more than ten properties, or those who may have had previous blips on credit history, to give you a few examples.

However, we have seen recently that criteria and attitudes are being relaxed and lenders are having to compete to attract more business.  There are also a large number of new entrants to this market including Foundation Home Loans, AXIS Bank, Fleet Mortgages and Pepper Home Loans to name just a few.  Each have launched their own niche propositions and are looking to attract a certain type of Buy to Let customer.

Buy to Let properties will often provide a modest monthly return over and above the mortgage payment.  The additional amount can be used to supplement income, or, with flexible mortgages, can be used to "overpay" the mortgage and reduce the term.

Most lenders in this sector will require the rental income to exceed the mortgage payment by up to 125%, normally at a marginal rate of circa 5% and, after costs such as managing agents, this should leave some spare cash to cover repairs, maintenance and landlords insurance. It should also enable a fund to be established to cover the mortgage payment in the event that there is no tenant in situ for a while. Remember that, whatever the deal, lender terms and conditions will always apply.

Secured Loans market is in a period of change

The second charge secured loans market is under a period of change and has been since April 2014 when responsibility for the regulation of consumer credit transferred to the FCA.  But there's also an EU Directive due to be implemented in 2016.  In short, when a customer wants to remortgage to raise additional funds, the intermediary/broker will need to demonstrate the best outcome for the customer and not only look at a full remortgage on a first charge basis, but compare with an appropriate secured second charge loan allowing the customer to keep the existing mortgage.  Although the Directive is still a way off, the FCA principles already apply to firms and individuals so best outcomes and best practice for borrowers are at the forefront of any advice and recommendation.

In fairness, and depending on the reasons for the capital raising, there are numerous examples of borrowers being better off with a secured loan rather than moving their existing mortgage, especially if it's an interest only mortgage.  In addition, those who are self employed with minimal accounts, have historic adverse credit or need a greater flexibility than that offered by first charge mortgage lenders, may have no other option than to look at a second charge on their property. 

So be prepared moving forward, if you want to raise some additional funds on your property, you will be presented with a standard remortgage first charge illustration as well as a secured second charge alternative. With rates now starting from below 5% on a second charge loan, this may not be a bad thing.

At the beginning of October, as mentioned in some previous articles, the Bank of England has enforced capping restrictions to lenders.  Funders will now only be allowed to lend up to 15% of their loan book at more than 4.5 times income.  No one knows the true effect this will have to funds available in the market generally, only time will tell. 

Finally, it is really good to see a new lender coming to market.  Fleet Mortgages, a new Buy to Let lender is set to launch in November.  The management team are no strangers to the market as many have been involved in various lending guises previously and we certainly welcome a fresh outlook and further funding in the market.  I wish them every success.