The buy to let mortgage market has undergone tumultuous change in the past few years and has impacted on landlords’ bottom lines.
Andrew Turner, chief executive at Commercial Trust Limited, explains why a conversation with a specialist buy to let mortgage broker could make a difference to maintaining profit.
The value to landlords of utilising a broker working with a wide breadth of lenders, has never been greater.
Buy to let landlords have seen enormous changes in the tax regime and a progressive set of rules which are professionalising the industry, adding further cost along the way.
Renting property is a business, so like any other, landlords want to operate at a profit.
The changes that have taken place mean that research and meticulous planning are essential to doing so.
Immense mortgage choice
Over the past five years there has been an enormous influx of new buy to let products in the market place, as lenders compete for new and existing borrowers.
In February 2019, financial data provider Moneyfacts listed 2,162 buy to let products, the most since October 2007, just before the financial crisis struck.
Competition is healthy and has raised the game in terms of the amount of choice available to borrowers.
But one-size does not fit all, in terms of borrower circumstances. That is where a broker can save time and money.
Considerable divergence in lender criteria
Changes to the underwriting of buy to let mortgages came into force in 2017. Lenders interpreted these in a huge variety of ways. As a result, there has been a significant impact on products a borrower qualifies for, regardless of whether their circumstances have changed or not.
This can present challenges to overcome, restricting product choice – or can open up a wider variety of available products.
New rules for HMOs
Houses of Multiple Occupancy (HMO) licensing rules changed in October 2018 and made it mandatory for thousands more rental properties to require a local authority license.
This will have possibly added licensing costs and potentially renovation costs to a landlord’s outgoings, putting further stress on the need to review finances, to maintain a profit.
Similarly, the phasing out of mortgage interest tax relief, changes to the wear and tear allowance and the 3% stamp duty surcharge on second homes, will have affected a landlord’s bottom line.
Criteria in general
Some other criteria that can impact on a buy to let mortgage application include: income, potential rental income, age, employment status, property type, local licensing rules and the borrower’s residency status.
Sourcing the right mortgage or remortgage product, is a far from straight forward process.
A recent Legal and General report suggested that 69% of consumers, including buy to let landlords, had not remortgaged in the previous five years, believing they were on a good deal.
What was a good deal five years ago, may not look so tempting in today’s market. Borrowers who have stuck to their guns, might have paid hundreds or thousands of pounds more, by not remortgaging to cheaper deals.
Moneyfacts data reveals that in January 2013, the lowest two-year fixed buy to let mortgage rate was 3.19 per cent, at 75% loan to value, with a 3.5% fee. On a £200,000 loan, that equated to a fee of over £7,000.
Today, borrowers can access an equivalent two-year fixed rate buy to let mortgage from 1.69%, with a £1,499 product fee and a free valuation.
The research showed that brokers have access to six times more products compared to going directly through a lender.
The numbers support the broker argument
According to mortgage sourcing platform Twenty7Tec, brokers have access to 12,000 products across the whole mortgage spectrum, while just 2,000 are available directly from lenders (and each lender will only offer you their own products, vastly reducing this number on a case by case basis).
The Legal and General report reflected strong support for using brokers, with 98% of borrowers finding the help they received ‘valuable’ and 95% saying they would recommend using a broker to friends or family.
An increasing array of choice definitely favours investors, but as is demonstrated in the statistics above, using a broker can be invaluable in finding the wood amongst the trees.
Andy Turner (Commercial Trust)