8 June 2018
The evolving nature of buy-to-let
The buy-to-let landscape has seriously shifted over the past few months. Various changes, such as the reduction in mortgage interest tax relief and the 3 per cent stamp duty surcharge on purchases hasn’t caused people to fall out of love with buy-to-let but it has slowed down the number of new landlords coming into the market. It has forced landlords to adapt the way they own their investments, the level of debt they can support and perhaps means putting more equity in.
Lenders have been adapting to these changes, with many introducing loans for landlords buying via a company, which wasn’t always the case. However, some of the main lenders still aren’t offering this option, which is surprising, given the rise in demand and the way the market seems to be going. But the good news for landlords is as a result of those lenders who have moved into this space, pricing has fallen, making these products more competitively priced than in the past.
There has also been a shift towards landlords taking out five-year fixed rate products, as these enable lenders to do the rental assessment using the five-year rate. This makes a huge difference; if standard assessments are used on property bought in London and the south, it often means it is only possible to get sub 50 per cent loan-to-value. This is lower than many landlords require, so if you need say 65 per cent LTV, then you need to lock into a five-year fix.
Buy-to-let is an evolving market but lenders remain keen to lend and are looking at other ways of making it possible. Top slicing is becoming more common– when the asset on its own isn’t meeting the criteria from a cover perspective the lender will look at the investor’s overall position and affordability. This may take into account income from other properties or earned income from employment. In many cases there is still a funding solution but seeking advice is more important than ever.