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Wednesday, August 26, 2015

Fluctuations and reflexes in an ever-changing market

Andy Young, at Property Hawk Mortgages says:

The buy-to-let mortgage market has always been subject to ebbs and flows caused by a number of influencing factors that affect the lending policies of finance providers in the sector. Some factors that exert pressure on lenders include FCA announcements, Bank of England interest rates, LIBOR movements, European Union policies, UK government policies, corporate lending targets, approaches to risk exposure and market competition.

The weight these factors bear upon lenders appears to vary significantly as each lender establishes its lending criteria and product design according to its own pricing models and risk strategies. This can result in seemingly contradictory pricing fluctuations among lenders and sudden changes to criteria.

As a broker operating in the buy-to-let market this can cause uncertainty, making the placement of some cases a tricky endeavor and one that can change greatly from one week to the next. Therefore at Property Hawk Mortgages we keep a close eye on the market and monitor the daily changes that occur.

Certainly, there has been a flurry of activity in recent months as interested parties have reacted to the continued growth in the buy-to-let market. On the one hand we have seen more new lenders enter the market including TSB Mortgages and Newcastle Building Society, keen to capitalise on the opportunity in this sector.

On the other hand, some parties have expressed concern over a potential ‘buy-to-let boom’ which may have caused other lenders to consider imposing stricter controls on their loans.

For example, Natwest and Accord have both increased their rental income calculation recently, which significantly impacts the amount of money that landlords can borrow. Natwest has increased its notional rate by 25 basis points from 5.25% to 5.50%. So, for a property with a monthly rental income of £700, the maximum borrowing has been reduced from £128,000 to just over £122,000.

In fact, many lenders have a rental calculation in the region of 125% at 5% at the moment, which means that buy-to-let clients can struggle to reach the maximum loan-to-values that are on offer. However, for landlords looking for lower rent stress tests there are a number of lenders who have a pay rate calculation which can increase the maximum loan available considerably. For example, Fleet Mortgages with a rental calculation of 125% at 4.07% gives a maximum loan of just over £165,000 (for a monthly rental income of £700).

This also demonstrates how important it is to look beyond just the headline rate being advertised by lenders and to examine the overall product offering when finding a suitable buy-to-let mortgage.

Despite signs that some lenders are imposing slightly stricter criteria, the growth in the market in terms of number of lenders and products has continued to create a highly competitive environment.

There are currently around 750 products on Property Hawk Mortgages’ free online buy-to-let mortgage finder and the pressure on pricing is ever present.

Newcastle Building Society launched its new buy-to-let range with Property Hawk Mortgages in August, providing a boldly priced selection of products starting at 2.35% up to 75% LTV. This is a very attractive rate and it is proving very popular, however there are at least 10 lenders currently offering sub 2.50% rates. Natwest, Virgin and Accord are also offering rates below 2.00% up to 60% LTV (at the time of writing).

To discuss your buy-to-let requirements please contact the Property Hawk Mortgages Support Team.
Tel: 029 2069 5446
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