Jane Simpson at Property Hawk Mortgages says:
As expected, we have seen some changes recently in the type of buy-to-let mortgage enquiries being received from landlord clients. This has mainly been driven by the tax changes and PRA regulations affecting the buy-to-let sector.
Property Hawk Mortgages (PHM) predicted that there would be a growing interest in longer term fixed rates offering more favourable rental calculations for landlords, but it is quite surprising how pronounced the change in demand has been.
5 year fixed rates
In the first half of 2016, before the market started to change, 2 year rates equated to 80 per cent of PHM’s total buy-to-let business and five year rates equated to only 12 percent. By the end of the second half of 2016, 2 year rates had reduced to 49 per cent of total business and 5 year rates increased to 46 per cent. This was during the period when lenders started to change interest coverage ratios (ICRs) in time for the January deadline.
Year to date in 2017, 2 year rates have equated to 30 per cent of PHM’s applications and 5 year rates made up the majority at 58 per cent. It signals a significant shift in demand and lenders have responded in kind with most providers now offering longer term products to landlords.
Similarly, there has also been an increase in demand for limited company products, probably because using a corporate structure enables landlords to avoid the personal tax relief changes that came into effect in April. The change has not been quite as dramatic, but is still indicative of a developing trend in reaction to the new market environment. In the second half of 2016, limited company applications accounted for 12 per cent of PHM’s business and year to date in 2017, this has increased to 21 per cent.
Freehold House Splits
Other recent trends relate to the types of properties that landlords are looking to invest in. PHM has seen an uplift in enquiries about finance for freehold properties split into flats, which can offer higher rental yields in much the same way that HMOs do. There is a good choice of lenders to choose from with several specialist lenders also offering limited company products for freehold splits, including Paragon, Vida Homeloans and Shawbrook Bank. Although most lenders require applicants to be experienced landlords, Kent Reliance will also consider first time landlords for this type of property finance.
New Builds Flats
We have recently noticed waves of enquiries about finance for new build flats, which unsurprisingly coincide with new property developments in the UK. This is a good sign for the housing market and is a niche area of the buy-to-let mortgage market that more lenders are now comfortable with. During the credit crisis in 2008, many lenders felt over exposed and stopped offering buy-to-let finance for new build flats, but in recent years there are more providers to choose from.
Lenders typically consider new build applications on a case-by-case basis depending on the location and size of the block of flats, and may offer lower loan-to-value (LTV) products for this property type. However, there are a few lenders currently offering up to 80 per cent LTV including Mortgage Trust, Paragon Premier and Vida Homeloans.
As a buy-to-let mortgage specialist, Property Hawk Mortgages is used to the dynamic nature of the marketplace and is well placed to help landlord clients to adapt to the ever-changing environment.
Tel: 029 2069 5446