A spotlight on BTL lending niches

Jane Simpson, managing director at Property Hawk Mortgages says:

At Property Hawk Mortgages we receive a diverse range of enquiries relating mostly to buy-to-let mortgages and have seen significant improvement over recent years in the product options available for landlords, which has increased the likelihood of us being able to find suitable solutions for buy-to-let clients. We are also in a better position to help prospective landlords looking to enter the buy-to-let property sector.

First-time Landlords

Although the recent tax and regulatory changes affecting the buy-to-let sector may have made investing in residential rental property a less attractive proposition for some, there are still people looking to make their first buy-to-let purchases, usually referred to as “first-time landlords”.

Most of the lenders on our panel will consider first-time landlord applications, providing they are currently owner-occupiers in the UK. Foundation Home Loans has recently launched a specific product range for first-time landlords requiring a minimum of 6 months residential ownership, but this minimum requirement does vary between lenders. Some lenders such as Kent Reliance and Mortgage Trust do not state a minimum period of ownership, providing the applicant’s name is showing on the title deeds.

Some aspiring first-time landlords are looking to set-up a limited company for their initial purchase to avoid the recent tax relief changes for buy-to-let. This is certainly an option with lenders who accept limited company applicants and can make financial sense for some new landlords, although it is always recommended for clients to seek qualified tax advice beforehand.

We have also noticed first-time landlord enquiries relating to higher yielding properties such as HMOs and multi-unit properties which may provide a better return for buy-to-let investors. However, the options for first-time applicants are limited to just one lender – Kent Reliance – as all other specialist lenders for HMOs require a minimum amount of previous experience as a landlord. For example, Vida Homeloans requires 12 months experience and Paragon Mortgages requires 3 years.

First-time Buyers

Although there are many options for first-time landlords who are owner-occupiers looking to purchase their first buy-to-let property, the case is quite different for first-time buyers without their own residential property.

At Property Hawk Mortgages, we currently have five lenders who will consider first-time buyers including Vida Homeloans, Natwest, Bank of China, Bluestone and Together Mortgages. The main difference for first-time buyers is that the lenders available normally apply an affordability test alongside regular rental calculations and criteria.

For example, Vida Homeloans applies the same affordability calculation as for its residential mortgages and has a minimum income requirement of £15,000. Natwest requires £25,000 minimum income and uses a multiplier of 4.99 to calculate the maximum loan available; so, for a first-time buyer on £25,000 the amount they can borrow may be quite restrictive in terms of the type of property they can afford to purchase, regardless of the expected rental income.

Bank of China has a minimum income of £18,000 and Bluestone has an affordability calculator, but both lenders will only offer mortgages on a repayment basis. Together Mortgages has no minimum requirement for first-time buyers, but the rates being offered are considerably higher.

Ex-council properties

We have also noticed an increase in enquiries about ex-council properties, which may be seen as an opportunity for some landlords. We have a good selection of lenders who will accept ex-council houses without too many restrictions, however most lenders are more selective about ex-council flats. This includes stipulating the maximum number of storeys in a block of flats – Accord has a maximum of 6, Shawbrook has a maximum on 10 and Leeds BS will only accept up to 4.

Some lenders will offer lower loan-to-values products for ex-council flats and others require that the block has a certain percentage of private owner-occupiers e.g. both Axis Bank and Virgin require 50 per cent to be privately owned.

Some lenders prefer not to lend on flats with deck access and other lenders may impose more restrictive minimum property values for ex-council properties, such as Aldermore and Fleet Mortgages with a minimum value of £150,000.

Although it can sometimes be more challenging to find solutions for niche buy-to-let finance needs, it is encouraging to see the diverse range of cases that can be solved with the right lender knowledge and a dose of perseverance for exploring different options.

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Email:info@propertyhawkbtlmortgages.co.uk

Tel: 029 2069 5446

Your home may be repossessed if you do not keep up repayments on your mortgages. The Financial Services Authority does not regulate some forms of mortgage.