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Lenders begin relaxing rules on some Buy To Let mortgages

Competition among mortgage lenders for landlords’ business has never been stronger. New tax increases for buy-to-let, and continuing uncertainty over Brexit, there are some bargain deals on the table.

Over recent months there’s been a fall-off in demand for buy-to-let mortgages, so those landlords seeking a mortgage right now have a wide choice. They can choose from some of the cheapest variable or long-term fixed-rate mortgages deals ever offered before.

In September, BTL mortgage approvals was 19 per cent down on the same month in 2017 the body that represents mortgage lenders, UK Finance.

It would seem that many of the mortgage lenders are falling over themselves to ease the path for landlords to borrow at competitive rates, despite the tougher lending regime. Under rules introduced in September 2017 by the Prudential Regulation Authority, landlords with four or more properties are classed as portfolio investors.

This new buy-to-let lending criteria means that lenders are required to look at a landlord’s whole property portfolio when making a lending decision for any single property. They look at the total income against borrowing across all the landlord’s properties, to make sure that any new borrowing won’t affect the affordability for the other properties, and in some cases individual earned income or salary is taken into account.

So rental income, related outgoings, rental profits, tax and business returns, plus other factors such as, are the properties meeting all the letting regulations, such as for energy efficiency standards? It all results in the landlord having to provide much more detailed information to the lender on the mortgage application.

However, given the new competition, which includes tradition banks, the building societies, and now the challenger banks entering the mortgage market, these strict rules are being interpreted more leniently.

Examples cited recently in an article in The Times, The Mortgage Works (Nationwide Building Society), a specialist mortgage lender, is softening the tests it applies to assess a landlord’s financial strength.

Borrowers must still show the rental income on the property is at least 125% of the mortgage costs (145% for higher earners), but the 5.5% target rate used to stress test for repayments is being relaxed for longer term commitments. In this case, for borrowers with minimum deposits of 25%, over 5 years, their 4.99% rate is reduced to 4.5%. With a 10-year deal, and minimum 65% deposit, it reduces from 4.99% to 4%, or the mortgage rate plus 0.75 points, whichever is higher.

Sainsbury’s Bank, The Bank or Ireland, Clydesdale Bank, Barclays, The Post Office, Halifax, Virgin Money, Kent Reliance, Kensington and others are all in a similar space with competitive deals as low as, for example, the discounted variable rate of a 1.14 per cent BTL mortgage offered by Leeds Building Society. This is available with a 40 per cent deposit, up to a maximum loan size of £500,000.

However, landlords need to be aware that some of these products come with high arrangement fees, though there are others through brokers with no fee – it does pay to shop around.


House prices down in the South but up in the North

Asking prices will stay flat next year, Rightmove is forecasting.

It believes that the “current sound fundamentals of the housing market” will continue, but that any increase in political or economic uncertainty would have a detrimental effects. Rightmove says asking prices in the north could rise by 2% to 4%, but that prices in the London commuter belt could drop by 2%. Asking prices across London will still fall, but by 1%, rather than the current annual rate of decrease of 2.4%. Rightmove director Miles Shipside managed to deliver the forecast without mentioning Brexit, although he did refer to uncertainty.

He said: “Since the property market’s recovery from the 2008 financial crisis, many parts of the northern half of the UK have seen marginal or relatively modest price increases. “We predict that these areas will continue to see price rises, though tempered by affordability constraints. In contrast, regions in and around the influence of London saw prices go up in a five-year period by an average of around 40%. “Consequently, we forecast that these previously booming areas will continue to see modest downward price re-adjustments in 2019. “Agents in some locations are reporting that home movers are being negatively influenced by the ongoing political uncertainty, and a more certain outlook would obviously assist market sentiment. “Whilst uncertainty traditionally deters some discretionary movers, particularly at the high end of the market, there are many would-be buyers and sellers who will be getting on with their lives and will be keeping the market moving.”


Rents predicted to rise over next 5 years

International property consultants Savills says affordability, not Brexit, will be the major factor in the future for the UK housing market.
Latest residential property market forecast shows predictions for the UK mainstream property market 2019-23:

• UK house prices to rise 14.8% from 2019-2023, with significant regional variation Ranging from 21.6% in the North West to single digit growth in London (4.5%), SE and East (9.3%)
• London’s prime market will perform more strongly, with prime central London +12.4%
• Transactions to stabilise, with first time buyer and cash buyer numbers most resilient
• Rents to rise 13.7% over next 5 years; London rents +15.9%
• UK house prices are set to rise broadly in line with incomes over the next five years, that’s the forecast from Savills latest study released 2nd November 2018.

The traditional north-south divide will turn on its head, says the report, with the Midlands, North and Scotland expected to see the strongest increases, according to this new forecast from the international real estate adviser, Savills.
Brexit will continue to have an impact on sentiment over the short term, particularly in London and its commuter belt, but local market affordability is expected to be more of a determinant of the pattern of price growth over the longer term, says the high-end agent.
Savills predicts that between 2019 and 2023, UK house prices will rise an average 14.8 per cent, ranging from 21.6 per cent in the North West to single digit growth in London and the South, by far the strongest performers since the downturn, due to affordability constraints. Values in the capital’s prime market will perform much more strongly, given price adjustments already seen in those market since 2014, thinks Savills.
Other regions were much slower to recovery post the 2008 recession and the global financial crisis (GFC), and some have only recently returned to peak values. House prices are therefore more affordable, with greater capacity for loan to income ratios to increase.
Lucian Cook, Savills head of residential research, has said:
Savills says that “transactions, rather than house prices, are often seen as the ultimate measure of market strength. Sales volumes have fallen only -6.9 per cent since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market.”
The firm expects that this figure will decrease by another 1.0 per cent over the next five years. “But a continued re-balancing of the composition of the market is expected, with mortgaged buy to let investor purchases falling by -23 per cent. This will add to upwards pressure on rents,particularly in London, as investors look to lower value, higher yielding markets.”

Latest on High Street Letting and Selling Agents' Fees

High street agents’ fees vary from city to city, from a low of around 0.8% to a high of 1.7%, while online firms have risen hugely in the last two years. According to estate agents comparison website, high street agents in Leicester and Glasgow have the lowest average fees, while London has the highest average fees. The table below shows the lowest and highest percentage fees, and what that on average works out to, based on Land Registry prices as at the second quarter of this year.

Highest traditional estate agent fees in the UK 1) London 1.70% (£10,877) 2) Sunderland 1.33% (£1,885) 3) Manchester 1.31% (£2,5,95) 4) Birmingham 1.25% (£2,568) 5) Leeds 1.18% (£2,444)

Lowest traditional estate agent fees in the UK 1) Glasgow and Leicester 0.84% (£1,042) and (£1,577) 2) Edinburgh 0.89% (£2,127) 3) Hull 0.91% (£1,086) 4) Bradford 0.94% (£1,555) 5) Liverpool and Bristol – 0.95% (£1,424) and (£2,852)

These statstics also reveal that, overall, traditional estate agent fees have fallen across the UK property landscape since 2016. Leicester saw the biggest reduction in fees going from 1.41% in 2016 to 0.89% in 2018, a drop of over 40%. However, an exception is specialist agents selling properties in high-value areas like N1 in London contributing to a hike of 45% (from 1.5% in 2016 to 2.18% in 2018) CEO Alex Thorpe, said: “It’s no surprise that, over the last few years, traditional agents have increasingly brought fees down to compete with online and hybrid agents. “However, we have seen that high street agents have continued to evolve their service to justify the extra fees with more focus on service along with an emphasis on helping to manage the entire process from marketing to completion. “We provide a level playing field for both traditional and online agents, so sellers can find the best option for them.” The same research also shows online estate agents fees have increased 37% over the last two years.

Letting Agents may face legal action over 'No Benefits Tenants' ruling

Agents and landlords who state in their adverts that they will turn away housing benefits tenants could face legal action from one of the major lobbying groups.

It's understood that Shelter could be considering a class action on the grounds of discrimination. The listed estate and letting agency group said yesterday evening that it had become aware that Shelter had targeted one of its offices, posing as a prospective tenant on benefits. After being told by Shelter that it was breaking discrimination law, the group had taken legal advice. Counsel’s opinion was that a breach of discrimination law looks likely. The agent said it had also been advised by its legal team that landlords might have a defence that is not open to agents – that lenders and insurers do not allow letting to tenants on benefits.

Some of the above stories are taken from Property Industry Eye, a leading online news resource for estate and letting agents.

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