What are the latest mortgage changes for Buy to Let?
There has been a lot in the press recently about the changes to lending in the Buy to Let market so, as award-winning mortgage advisors, we thought it might be useful to update you on what’s happening, how it may impact you and what, if anything, you need to do.
One of the biggest changes is that the first step has now been taken into regulation of Buy to Let borrowing. The Government has interpreted the new EU Mortgage Credit Directive in such a way that, as of 21st March, it now distinguishes between ‘professional’ and ‘consumer’ landlords.
The legislation lays out the circumstances under which a landlord is considered professional and many landlords who have embarked on Buy to Let investing will fall under that umbrella. The new rules are intended to extend protection to those who didn’t necessarily plan to become landlords: mainly people who had to let their home because they couldn’t sell and those who inherited property and are letting it out in the short term. The Treasury estimates that 11% of existing Buy to Let mortgages could now fall into this category.
If you are considered a consumer borrower, you will have to undergo similar affordability tests to people applying for a residential mortgage and take out a regulated product that offers you a level of consumer protection.
We don’t think this new legislation will actually have much effect. John Hargreaves our National Financial Services Director comments: “As regulated mortgage advisors, even though buy to let mortgages haven’t always come under regulated protection, we will have still organised lending for you based on these principles, but it’s worth checking with us whether in the future your buy to let borrowing will be considered consumer or commercial.”
The latest proposals around the criteria for lending may affect some of you, but we think they are positive. Currently when a lender typically determines whether to lend on a Buy to Let property, their main criteria is how much rental cover there is versus the mortgage interest payment.
Most lenders consider between 120% and 135% to be sufficient cover to approve a deal. However, we know that not all rental properties stack up at this level. We also take the view that an investment should be viewed more ‘holistically’, for example, considering the tax implications, which not all lenders or mortgage advisors currently do. Adding an extra property to your current ‘wealth’ can mean you actually end up worse off, so it is vital you investigate and understand the tax impact before you invest in Buy to Let, which is what the latest consultation is considering.
Although these are new changes and many are still in consultation stage, it is estimated that most lenders and mortgage advisors already comply with what’s being proposed and that there are only around a quarter that don’t. So while that 25% need to raise their standards, most investors are unlikely to even notice the changes if they are implemented.
We very much take the view that an investment is looked at as ‘holistically’ as possible. We will have an honest and frank discussion about what protection needs you have and which products would be the most appropriate for you.
For example, there can be tax implications of your investment to take into consideration and although we don’t give tax advice, it is important to understand that adding an extra property to your ‘overall wealth’ can mean you actually end up worse off income wise. Although lenders and mortgage advisors don’t currently have to look at these wider implications, it is something the latest proposals are recommending.
(source: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp1116slides.pdf page 7/10, point one)
If you want to discuss your property investment options in light of these changing rules and regulations and shifting rates and lending criteria, do contact one of our award-winning in-house mortgage advisors.
Award Winning Financial Services - Reeds Rains are winners of Silver for Financial Services at the Sunday Times Estate Agency of the Year Awards 2015.
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