1. If you own a But to Let property(s) then this is a very important piece of
advice....................you are sitting on a potential time bomb which will detonate when
you come to refinance your investment property(s).
Due to the government assault on the Landlord property market, lenders have
started to tighten up on their affordability criteria for Landlord borrowers. As well as
the tax changes coming down the line from next year, what hasn't been publicised
yet, is the way lenders are starting to implement these new changes. Where as
previously lenders were using the affordability model of the rent exceeding the
mortgage payment by 125%. They are now moving the goalposts to using an
assumed interest rate of between 5-7% and a margin of rent over mortgage payment
of 130-150%.
So what does this mean? Not only will it make getting a mortgage for new Landlords
much harder but the real effect will be felt later this year & next year, when Landlords
come to try & remortgage their current properties, only to find that many of them will
fail the new affordability test. This means that you may end up being stuck with your
current lender on its Standard Variable Rate (SVR). This may not be too onerous at
the moment but there is a second impact which will hit you even
harder...........interest rate rises.
There's no sign of one at the moment. But two things could happen to change this.
The first being that the Bank of England decide at some point to start raising the
base rate. When they eventually do, you will see that lenders and especially the But
to Let lenders, will raise their rates by more than the base rate increase. They have
form on this. We will start to see Landlord borrowers being squeezed much harder
than residential borrowers. Secondly, there is the current case of the Landlord's
action group against the West Bromwich Building Society. This is over the West
Bromwich's decision to raise the margin on their tracker rate, even though the bank
base rate hadn't changed. They relied on their small print which apparently allowed
them to do this in times of economic uncertainly. This is now undergoing a class
legal challenge. If the West Bromwich win, then this will give the green light for all
other lenders to potentially follow suit.
So, what should you do? If you do not have a large amount of equity in your
property(s) & you are not confident of being able to significantly increase your rents
to cover the new criteria, then you should be looking to refinance now, before the
new criteria becomes adopted by all lenders. And at the same time, select a long
term fixed rate.
If you are concerned about these changes, I will be pleased to provide a free initial
assessment, as to what you’re best options are.