Mortgage Update – Innovation and increasingly flexible criteria in times of Brexit
Over the last few years Brexit, stamp duty increases for investment properties and second homes, section 24 and the introduction of more stringent rental calculations for buy-to-let (BTL) by the Prudential Regulation Authority (PRA,) have all contributed towards stagnating house prices and a reduction in the volume of transactions in the housing market. Against these tougher market conditions and uncertainty, it is more important than ever for lenders to offer a unique proposition. For example, we have already seen supermarket giants Sainsbury’s and Tesco pull out of the mortgage sector this year, having struggled to gain a suitable foothold. This means we are seeing greater innovation and flexibility in criteria amongst providers, keen to hit lending targets and retain market share. A few useful illustrations have been outlined below:
Multi-Units: With the BTL market having been especially impacted by the aforementioned changes, lenders are increasingly broadening their offering. This has seen providers who may have lent on houses in multiple occupation (HMO’s) also include multi-units within their range at the same price point. This is great news for those developers looking to retain a block of flats to let out. For example, Paragon have a 2.95% 2-year fixed rate at 75% LTV; that would apply to a 4 bed HMO as well as 20 individual units under one title.
Serviced accommodation: Without a suitable track record, often two years’ serviced accommodations experience, it has been difficult for investors to access appropriate funding for this type of let. Foundation Home Loans launched a short term let product last year, however, that only requires you to be an existing BTL landlord to qualify. 2-year fixed rates at 75% LTV start at 3.49%.
BTL Rental calculations: If you have struggled to release or raise the amount you need against a BTL property in the last few years, it could be worth reviewing this again, as there are various methods available which could increase the loan available to you. They are particularly useful for lower yielding properties in London and the South-East. Options include top slicing which uses your personal income or more flexible calculations for limited companies or base rate taxpayers. The most effective solution is often to fix in for 5 years as the rent can then be stress tested at the payrate. As an example, Precise currently have a product at 75% LTV, which will be stress tested at the 3.19% 5-year fixed payrate and they only require 125% coverage for limited companies. On a £1000 monthly rent this would allow you to borrow £150,470 more than the PRA’s recommended 5.5% stress test rate and 145% coverage.
Refinancing within 6 months: Foundation Home Loans have, as of the 25th of September 2019, launched their early remortgage product. This means they have joined Kent Reliance in allowing an investor to purchase, refurbish and then refinance a property at the new open market value within a 6-month period. This cuts down the time spent on the more expensive bridging finance while allowing you to, figures permitting, pull money back out of the deal. Unlike Kent Reliance, this product does not yet allow for HMO’s, multi-units or cash purchases. 2-year fixed rates start at 3.4% for a 75% LTV product.
The above focuses primarily on BTL however it is a similar story in the residential sector. Whether it is Santander increasing their maximum income multiple to 5.5, near prime lenders like Precise, Aldermore or Kensington also offering help to buy loans in addition to the high street, improved efforts to assist the self employed or contractors or the bespoke underwriting offered by lenders like Investec or Oak North for high net worth applicants, lenders are looking to carve out their own niche as opposed to competing purely through price. In this ever-changing market it is important to keep updated, as is the availability of these products and funding may just impact your future investment strategy.
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