Category: buy to let
Nathan Reilly discusses the upcoming changes in the buy to let market and how advisers can help landlords prepare for them.
The buy to let sector has seen a number of changes in recent years. This has been a challenge for landlords, lenders and advisers alike during a period of adaptability, flexibility and resilience.
But with the Prudential Regulation Authority’s (PRA) second phase of new underwriting standards for buy to let lending coming into effect on 30th September, there is further in store for the sector. Some lenders are already making announcements regarding their approach to buy to let portfolio lending, which means landlords need to prepare now.
What exactly is changing?
In line with guidance set out by the PRA, from 30th September 2017 landlords who have four or more mortgaged buy to let rental properties will be considered as portfolio landlords by lenders. The PRA expects all firms that conduct lending to portfolio landlords to use a specialist underwriting process that takes into account complex borrowing scenarios.
This will require the entire portfolio to be underwritten when applying for a new buy to let mortgage, even if the other mortgages are with a different lender. Lenders will also be required to use additional affordability tests on portfolio landlords and will require additional documentation to support applications.
How can landlords get ready?
Specialist lenders, already experienced in using a similar underwriting approach, have been clarifying their stance and assessment criteria. Whilst a number of mainstream buy to let lenders have also started to confirm whether they will be supporting portfolio buy to let lending going forward.
It’s likely there will be more announcements over the coming weeks, but between now and 30th September, it’s vitally important landlord clients are aware of how the changes could impact their current or future plans.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Craig Bryce explores the benefit of encouraging landlords to pass the protection conversation onto their tenants.
There is a common belief among landlords that aside from buildings insurance, they simply don’t need protection. They believe that should they become critically ill or die, they would either sell their property or it would become part of their estate.
Ok, I admit it’s not that simple. Of course landlords recognise the importance of a good protection plan. In fact, plenty of landlords take out protection to cover their rental payments.
But if it isn’t something they need directly from the adviser, should they be passing on the protection conversation to their tenants regardless? Tenants will likely be unprotected and certainly in need of some cover.
Of course the big question for landlords is: How can ensuring tenants are protected benefit me and my business?
Securing income
A large number of people renting are at a halfway point between living at home and moving into their own home. It is a common ambition in the UK to own your own home, for the security and confidence it delivers. But their hard work could all be undone if they were to fall ill and had to pay the rent with their savings.
The majority of landlords insist on a six month notice to end an agreement on a flat. If the tenant’s employer covers them for less, what would they do about the shortfall in income? This could affect the cash flow of landlords significantly.
So what is the alternative? Well, if their tenant has an income protection policy in place, it will cover most of their lost income. If the plan has a two year payment period, this would ensure that they have both the six months to cover the notice period and another 18 months grace period, in case the illness turned into a longer-term absence. Either way, they would now have two years of breathing space and steady income from the policy.
Affordable options
I am always surprised just how affordable an income protection policy can be. I ran a quick quote on iPipeline’s SolutionBuilder, and saw that a short term two-year payment income protection plan (to age 65 with a 4 week deferred period for £1,000 a month), can only cost between £15 and £20.
We have some great specialist income protection companies on our protection panel to go alongside the mainstream income protection providers. These include The Exeter and British Friendly, giving advisers a comprehensive selection to offer their landlords’ tenants.
With low housing supply and high deposits, many renters simply do not realise how important it is to protect their income. Landlords could be encouraging tenants to cover themselves, which is often in the financial interests of both landlords and tenants. This would also ensure what all landlords want: A long term tenant, to avoid the hassle of marketing the property out again.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Product Development Manager Nathan Reilly highlights some of the big opportunities for advisers to help clients in 2018
2017 was a big year for several sectors in the mortgage industry, with plenty for advisers to keep on top of. This has made helping advisers prepare for opportunities and adapt to change an even bigger focus for our network and club this year.
To help advisers stay ahead of the game once again, I have highlighted some of the top opportunities there will be to support clients in 2018!
The cessation boom
Current data predicts that £220bn worth of mortgage product cessations are due in 2018. This is a massive opportunity to help clients ensure they are on the most suitable product for them, especially if that means they can save money on their monthly mortgage repayments.
Some lenders are increasing the number of remortgage and product transfer products they offer. Data shows that remortgaging was responsible for 37% of valuations in August 2017, which is its highest share of the market in a decade. Early signs suggest remortgaging will have another big part to play in 2018.
Base Rate rises possible
Whether or not the Bank of England increases the base rate from its historic low on Thursday 2nd November, there has been definite movement from the Monetary Policy Committee towards an increase.
Even a small upward movement could create a substantial change in consumer behaviour. Moving from just talk of a rise to the increase itself will mean people may start looking more closely at those stress margins they were tested against. Advisers will be invaluable once again, as this may also trigger a new wave of remortgage opportunities.
Changes to HMO
A recent survey found that more than 85% of all landlords were unfamiliar with upcoming changes regarding Houses of Multiple Occupation. From April 2018, landlord clients may have to carry out expensive restructuring work on properties or risk being fined.
The new laws will impose tougher minimum standards on room sizes, waste disposal and storage facilities. After the changes, some landlords may even be left with rooms they are no longer able to rent out to tenants.
GDPR comes into effect
The General Data Protection Regulation, otherwise known as GDPR, will replace the existing Data Protection Act. This will become part of UK law from 25 May 2018 and apply to any organisation that handles any individual’s personal data. The new rules are designed to give more people control over how their data is stored and for how long.
Help for mortgage prisoners
The FCA has been calling for lenders to do more to help mortgage prisoners. These are borrowers that have found themselves trapped on a lender’s SVR, unable to remortgage due to complicated borrowing scenarios.
Experts are concerned at the growing number of mortgage prisoners in the market, who often as a result of changing circumstances no longer meet new affordability and stress testing rules. Fortunately, we have grown the number of specialist lenders on panel to bring advisers more options to help those with borrowing needs that require a specialist touch.
Second phase in BTL tax relief
After being introduced in April, the changes in tax relief that landlords can claim on their mortgage repayments for second homes will reach its second phase in April 2018. The level of income tax relief landlords can claim will be restricted to the basic rate by 2020. This will affect those that let residential properties as an individual, or in a partnership or trust.
All residential landlords with finance costs will be affected, but only some will pay more tax. Landlords that won’t be affected include UK resident companies, non-UK resident companies and any landlord of Furnished Holiday Lettings. It is of course important to ensure that clients are getting the required tax advice from an expert when considering the financial effects of any tax changes.
Advances in technology
It is hard to get away from changes in technology, and this is as much the case in the mortgage sector. Robo-advice is still being looked at as a possible way of streamlining the mortgage process for consumers. Freeing up time to spend with clients can only be a good thing, and far from replacing the adviser, changes in technology could simply mean more clients will be supported even more efficiently.
A certain portion of those needing to borrow money for a home will of course be looked after more quickly through automation. But human advice is still highly valued in a sector that contains numerous borrowing scenarios, which often need looking at in more detail than simply a series of questions.
Other things to keep an eye on
EPC changes – Energy Performance Certificates (EPCs) are used as a measure of the energy efficiency of a property. Although first introduced for those buying and selling homes, they are now prevalent in the rental market as well. From April 2018, landlords will need to reach a minimum EPC level before renting their property to new tenants.
Aging population – As people live and say healthier for longer, it becomes more common to borrow into later life. Lenders are adjusting their criteria all the time to suit the changing needs of older borrowers. This includes higher age limits and a raft of more suitable options to suit their needs, such as interest-only and specialist products.
Open Banking – The CMA (Competition and Markets Authority) retail banking market investigation found that larger banks did not have to compete for market space when compared with their smaller and newer counterparts. This has resulted in consumers paying more and not benefiting from new services. The CMA is therefore implementing one of their reforms called ‘Open Banking’, a transparency initiative that the FCA finalised requirements for in September.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.
Product Development Manager Nathan Reilly takes a look back at an eventful 2017 in the mortgage market, and highlights how advisers have helped their clients this year
2017 was another big year for the mortgage industry, with an array of complicated changes that have put even more value on intermediaries. Advisers have responded by keeping on top of all the ramifications for their clients and spending time with industry representatives and experts to fully understand the details.
Below is a round-up of all the big 2017 announcements. We have supported advisers throughout the year by giving them access to relevant events, such as mortgage workshops and webinars, designed to help absorb the changes. This means that no matter what the industry throws our way, advisers have the support needed to continue delivering the same first-class advice to clients…
First-time buyers
Help to Buy
The year began with the end of the Help to Buy: Mortgage Guarantee scheme, as lenders began supporting more borrowers with small deposits. But the Help to Buy: Equity Loan scheme was also extended to 2021. This is great news for those struggling to find the required deposit to buy their first home.
In autumn, Theresa May promised to boost the Help to Buy scheme with an additional £10bn funding, which she confirmed would help another 135,000 people onto the ladder. The Help to Buy ISA is also continuing to be used by plenty of first-time buyers to boost their savings and save money on their house purchase.
Stamp Duty
One of the big mortgage announcements in November’s Budget was the scrapping of stamp duty for first-time buyers. The Chancellor’s flagship budget policy will mean those buying a home worth less than £300,000 will no longer need to pay stamp duty land tax, which according to the government will encompass 85% of those looking to buy their first home. The cut will also apply to the first £300,000 on properties valued up to £500,000, in areas such as London, purchased by first-time buyers.
There was speculation leading up to the Budget that the tax would be scrapped completely, in an effort to support first-time buyers and to make home-owning more affordable for young people in the UK. Solving the housing crisis in the UK was always going to be one of the main focuses of the budget, and this announcement by the Chancellor should go towards increasing first-time buyer transactions in the UK.
Homeowners
Base Rate
Obviously a base rate rise affects everyone. But homeowners especially will have been looking at their current mortgage rate a bit more closely. With rates at record lows for so long, it is only natural that advisers would get calls from clients, asking how this would affect their mortgage.
The move raised some big questions for borrowers, least of all the possibility of another rise in the near future. Those borrowers financing mortgage repayments on standard variable rates (SVR) may have already seen their repayments increase, with those on tracker rates even more likely to have been affected.
Remortgages and Product Transfers
Even after the base rate was increased, the opportunities for homeowners to save money by remortgaging has continued throughout the year, with lenders competing to offer competitive fixed rates and low cost borrowing prevailing. We have been helping where we can, by supporting client touchpoints and encouraging advisers to reach out to clients, especially those with products nearing cessation.
Investors and Landlords
Tax Relief
April saw the first stage in the reduction in tax relief for landlords, which is scheduled to be phased in over a four year period. This move is part of the Government’s plan to redress the balance between investors and buyers in the housing market, by reducing the tax relief landlords received on their mortgage payments.
By April 2020, the tax relief that landlords of residential properties receive for finance costs will start to be restricted to 20%. In the first quarter of 2017, this created increased interest from investors considering moving their portfolio over to a limited company. Limited companies set up for the sole purpose of buying and letting property, will not be affected by the changes.
PRA changes
One of the big impacts in 2017 came in the form of new rules on lending to portfolio landlords. From October 1st, extra stress testing is used for those with four or more mortgaged properties. Some lenders however have approached the new rules differently which may have affected those outside of this definition.
The additional testing has meant more in-depth affordability checks, taking into account properties, as well as personal income and tax liabilities. We held a series of workshops to help advisers understand the changes and how each lender would be altering their criteria as a result. This meant they could go back to their clients and help them prepare their documents.
Join our award-winning Mortgage Network as an appointed representative, or become a member of our Mortgage Club, to start benefiting from our fantastic range of comprehensive services and support. Call the Broker Support Team on 0845 130 7446 (opt 1) to find out more.