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Buy-to-let product choice reaches one-year high, the analysis has revealed

Product choice in the buy-to-let market is broadening but rates are also on the rise, the latest analysis from Moneyfacts.co.uk has revealed.

Figures released today show availability of products is at a one-year high, having risen for the fifth consecutive month to reach 2,333.

Moneyfacts said the sector had recovered to 81% of pre-pandemic levels (compared to 68% recovery in the residential sector) and now offered the highest number of products seen since last March, providing landlords with a greater level of choice.

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Yet, at the same time, the average two-year fixed rate was 0.28% higher year-on-year – at 3.05% was the highest recorded since June 2019 (also 3.05%).

The five-year equivalent at 3.41% increased 0.17% compared to a year ago and was currently the highest since September of 2019, when it reached 3.44%.

Month-on-month, the only borrowing tiers where rates had fallen since February were at 60% loan-to-value (LTV).

Moneyfacts also revealed how the proportion of the fixed rate buy-to-let sector which was offering fee-free deals or incentives – such as free valuations or free legal fees – had also reduced year-on-year.

This, Moneyfacts, said, indicated landlords may have to search a little harder for deals with the right incentive package for them.

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Meanwhile, the proportion of the market where cashback was available has risen to 25% – a 4% improvement on last year.

Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “There is no doubt that the impact of the pandemic has been polarising, with the buy-to-let sector not escaping from this trend.

“There may therefore be landlords whose focus will be on cutting costs and increasing margins where possible, perhaps by refinancing their existing buy-to-let mortgages.

“Equally, there may be some who are now in the fortunate position of being able to consider investing in a rental property for the first time.”

Williams also explained how the only LTV tier where average fixed rates did not increase this month was at 60% LTV, where both the two and five-year average fixed rates fell by 0.38% and 0.27% respectively.

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She added: “It is important to note though that these are averages, and therefore while representative of the market as a whole, there are some very competitively priced products available, with some – depending on LTV and criteria – available at below 2%.

“Therefore, those who are hoping to refinance or take on a new deal would do well to shop around.”

Buy-to-let mortgage market analysis (Source: Moneyfacts)
Mar-20Feb-21Mar-21
BTL product count – fixed and variable rates2,8972,1002,333
BTL two-year fixed – all LTVs2.77%2.97%3.05%
BTL two-year fixed – 80% LTV3.56%3.97%4.14%
BTL two-year fixed – 60% LTV1.89%2.52%2.14%
BTL five-year fixed – all LTVs3.24%3.32%3.41%
BTL five-year fixed – 80% LTV3.98%4.11%4.29%
BTL five-year fixed – 60% LTV2.31%2.79%2.52%
Buy-to-let fixed mortgage market analysis (Source: Moneyfacts)
Mar-20Feb-21Mar-21
Deals with no product fee475 (19%)254 (14%)301 (15%)
Deals with free/refunded legal fees840 (34%)614 (34%)614 (30%)
Deals with a free/refunded valuation1352 (55%)774 (43%)789 (39%)
Deals with cashback531 (21%)307 (17%)503 (25%)
Data shown is as at first working day of month, unless otherwise stated. The % shown is the proportion of deals out of the fixed mortgage market. Source: Moneyfacts.co.uk

Source: Mortgage Finance Gazette

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Mortgage approvals at 13-year high

UK lenders approved 97,532 mortgages in October, the most since September 2007, the Bank of England’s Money and Credit data shows.

The housing market has gotten busier, as there were 92,091 given the green light in September, compared to 85,704 in August.

Before the pandemic the were 73,384 mortgages approved in February, before the amount fell as low at 9,335 in May.

Nitesh Patel, strategic economist for Yorkshire Building Society, said: “The housing market continues to defy economic logic, despite challenging economic conditions caused by the global Covid-19 pandemic and uncertainty over the UK’s trading deal with the EU.

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“Pent-up demand from the lockdown has been driven by buyers looking for bigger homes that accommodate home working and more garden space, as well as the Stamp Duty cut may have drawn in opportunistic buyers who were previously discouraged by high transaction costs.

“There is good reason to believe that homeowners with large amounts of equity in their homes are the most active, with first-time buyers making up a smaller proportion of approvals.

“These are temporary factors, particularly the Stamp Duty cut which, as it currently stands, ends on 31 March next year. With the economy set to remain weak and unemployment likely to rise when the job support scheme comes to an end, we should see housing activity start to decline in the second quarter of 2021.”

But Richard Pike, sales and marketing director at Phoebus Software, said: “It is not only the stamp duty saving that is driving the market, there is also the number of people looking to escape city life since the lockdown. And, as the ‘working from home’ culture continues this is likely to endure past the limitations imposed by Covid-19.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

“The problem then will be the age-old one of supply and demand. Despite the government’s promises, we are, according to the ONS last week, way behind our target for new housebuilding in the last year. With the knock-on effect of the pandemic, this is something that isn’t going to be fixed quickly. So, the mass exodus from our cities that has been predicted, could turn into a trickle come the spring.”

Tomer Aboody, director of property lender MT Finance, said: “This is an opportunity for many would-be buyers who in the past couldn’t afford or preferred not to buy, to go and purchase, locking themselves into a longer-term mortgage rate at an affordable level, and with a low enough deposit so that it doesn’t impact their savings too much. This, coupled with the stamp duty break, has fuelled the market and helped push up property prices.

“Unlike 2007, we should be confident in the banking sector, which is highly liquid, as well as confident in the market. We may be living with a pandemic but hopefully this will be under control before long, allowing us to carry on with our lives before too much damage is done to the economy.”

BY RYAN BEMBRIDGE

Source: Property Wire

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Buy To Let Mortgage Lending Ends Year On A High

Buy to let mortgage lending ended 2019 on a high, according to the latest UK Finance Mortgage Lending Trends Statistics just released.

There were 5,700 buy to let mortgages for new property purchases completed in December 2019, 3.6 per cent more than December 2018.

There were 13,300 remortgages in the buy to let sector, 2.3 per cent more than in the same month in 2018.

Buy to let lenders reacted positively to the newly released buy to let mortgage lending figures.

Shaun Church, Director at Private Finance commented: ‘After a period of continuous decline, the buy to let market is finally starting to show signs that it is regaining strength, with buy to let purchase activity up 3.6 per cent year on year. News of a strengthening buy to let market should be welcomed by landlords and renters alike. An increase in buy to let purchase activity will mean a greater supply of rental housing stock, generating more choice and more competitive prices to be enjoyed by renters up and down the UK.

‘With the Budget around the corner, the Government might be tempted to tweak buy to let regulation further. However, with the buy to let market now more professionalised and starting to show glimmers of growth, we strongly urge the Government to focus on redressing other areas of the market which are in need of attention, primarily the challenges facing last-time buyers and second-steppers.”

Damian Thompson, Group Managing Director – Retail Finance at Aldermore, said: ‘It is encouraging that 2019 finished with the strongest quarter of the year for buy to let volumes, but the sector remains in a ‘new normal’ since the regulatory change, with a continued split between muted house purchase activity and more buoyant remortgaging.

‘Landlords have become more diversified in their needs, with many moving away from a growth strategy focusing more on portfolio management, and the sector is gradually adjusting to the shift towards professionalisation. Whatever a landlord’s future intentions, the increase in regulatory measures and more complicated mortgage applications means specialist lenders are now more vital to the market.’

Source: Residential Landlord

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More business opportunities to be had in BTL

Whilst mortgage advisers deal with the bulk of buy-to-let business there is still a considerable amount of lending being placed directly with lenders, recent research by Foundation Home Loans has revealed.

The latest landlord research for Q3 showed that 73% of landlords carried out their most recent mortgage via an adviser and 19% went direct to a lender.

Jeff Knight (pictured) director of marketing at Foundation Home Loans, said: “In the increasingly complex and competitive world of buy-to-let mortgage lending, it seems somewhat surprising to hear that nearly 20% of landlords went direct to a lender for their latest mortgage, and 23% plan to go direct when they next remortgage.

“However comfortable you are with the market – and there are many portfolio landlords who might feel able to sort their own finances out – there is still the potential to miss out on a quality deal with benefits that only a mortgage adviser would be able to access, but as a landlord going direct you would not.

“That should surely be the message that advisers – and the wider industry – need to take to landlord borrowers because things do change very quickly, rates and criteria are shifting on a daily basis, and a landlord that thinks they’ve got the right mortgage for them, might actually be very far way from that outcome by not using an adviser.

“Once again, we collectively need to extol the value of quality advice, not just in a one-off transaction but across a borrower’s whole portfolio, because there are clearly huge benefits for portfolio landlords to take advice and to secure a much better financial position because of this.”

Nearly a third (31%) of landlords said they plan to remortgage at least one of their properties over the next 12 months.

Some 65% of those said they would expect to use an adviser and 23% would go direct to a lender.

Most landlords (48%) had followed a recommendation when choosing their adviser whilst 11% chose an adviser through an internet search and 9% chose through their membership of a landlord body.

HMOs continue to generate the highest rental yield for landlords at 6.5%, with 20% of landlords now having an HMO property within their portfolio.

Knight added: “It’s perhaps less surprising to see more landlords opting to put HMOs and multi-unit blocks within their portfolio, especially as the necessity of securing strong rental yield from properties has never been greater.

“As a lender active in the HMO space, we know how different they can be to other types of properties, and with last year’s licensing rules now in full effect it’s important that advisers are able to impart these types of details so the landlord knows their full responsibilities.

“We often have a situation where the criteria, income and mortgage requirements are different for HMO lending, and therefore advisers who want to be at the top of their game in this space should work with like-minded lenders, and ensure they are able to get the best deals for their HMO landlord clients.”

By Michael Lloyd

Source: Mortgage Introducer

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The buy-to-let market stabilises

Buy-to-let activity was mostly unchanged in May, leading to suggestions that it has stabilised, the UK Finance Mortgage Trends Update has found.

There were 5,500 new buy-to-let home purchase mortgages completed in May, the same number as this time last year. There were 15,000 remortgages in the buy-to-let sector, 2% more year-on-year.

Mike Scott, chief property analyst at full-service estate agent Yopa, said: “The number of buy-to-let mortgages for house purchase was unchanged from 2018, suggesting that the buy-to-let market has finally reached a new stable level after several unfavourable tax changes.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “Buy-to-let continues its steady trend, showing that investors are sticking with the sector rather than deserting it in their droves.

“That said, we are also not seeing a flood of new landlords – rather, the experienced ones are adding to their portfolios where they see opportunities and remortgaging to keep costs down.”

Tomer Aboody, director of property lender MT Finance, also highlighted that he hasn’t seen a flood of buy-to-let investors selling up as a consequence of the extra taxes that have hit them.

In 2015 the government said it would start to phase in mortgage tax relief. In 2017 to 2018 the deduction from property income was restricted to 75% of finance costs, in 2018 to 2019 the finance costs are down to 50% and during 2019/2020, 25%.

From 2020 to 2021 all financing costs will be subject to a basic rate tax reduction.

Aboody said: “Investors are absorbing the extra costs and refinancing, hoping that in the long-term values will go up.

“This once again proves that higher stamp duty and extra taxes haven’t helped create more movement in the housing market, but have done the complete opposite and created stagnation instead.”

There were 30,720 new first-time buyer mortgages completed in May, 0.5% more year-on-year.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, attributed this increase in first-time buyer numbers to the slowdown of the buy-to-let market.

He added: “First-time buyers are also taking advantage of reduced competition from the buy-to-let market as landlords reduce activity following various recent tax and regulatory changes with several more on the way which will compromise profitability.

“They are also benefiting from almost record low mortgage rates and improving affordability.”

By Michael Lloyd

Source: Mortgage Introducer

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The buy-to-let market stabilises

Following from regulatory and tax changes, the buy-to-let market seemed to settle in April, remaining unchanged from the previous year, UK Finance’s Mortgage Trends Update has found.

There were 5,100 new buy-to-let house purchase mortgages completed in April, the same as this time last year, and there were 14,400 remortgages in the buy-to-let sector, the same as this time last year.

Gareth Lewis, commercial director of property lender MT Finance, said: “The buy-to-let numbers really stand out because they have remained stable compared with the same period last year, suggesting sustainable activity.

“This is remarkable given all the negativity surrounding the sector and the harsher tax and regulatory environment. Tales of landlords exiting the sector in their droves seem wide of the mark: these figures suggest that isn’t the case at all.

“Part of the continued demand for buy-to-let is down to the lack of alternatives investments. Savings rates are low and monitoring the stock market is almost a full-time job.

“As long as you play the long game with property, there is more certainty of growth and people tend to trust bricks and mortar more than other investments.”

In 2015 the government announced it would start to phase in mortgage tax relief. In 2017 to 2018 the deduction from property income was restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction, in 2018 to 2019 the finance costs are down to 50% and during 2019/2020, 25%.

From 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Andrew Montlake, director of the UK-wide mortgage broker, Coreco, added: “What’s interesting is that the impact of recent tax changes on the buy-to-let market appears to have settled down.

“The buy-to-let market is not what it was but has now reached a new equilibrium.”

Richard Pike, Phoebus Software sales and marketing director, said: “Even the buy-to-let sector is holding its head above water which, given the regulatory and tax changes that landlords have had to withstand, is somewhat surprising.”

Simon Heawood, chief executive and co-founder of Bricklane.com, was less pleased with the figures.

He added: “The number of new buy-to-let mortgages has fallen off a cliff over the last few years, with the total down 50% since 2016. Based on today’s stagnant numbers, we shouldn’t expect that trend to change in the near future.

“The rental market has become increasingly difficult for new and existing landlords to navigate. In addition to a raft of tax penalties, the recent introduction of the Tenant Fees Act and the proposed scrapping of ‘no fault’ evictions show that the market is moving in a pro-tenant direction.

“Landlords will soon be expected to provide a higher standard of service and, faced with diminishing profits and an increasing workload in the buy-to-let market, we expect to see more and more individuals revaluating their portfolios, with many then looking at alternative routes to invest in this asset class.”

There were 18,920 new remortgages with additional borrowing in April, up 0.3% year-on-year. For these remortgages, the average amount taken out in April was £54,000.

Furthermore, there were 19,140 simple pound-for-pound remortgages, with no additional borrowing, 6.2% fewer year-on-year. In total, there were 3.1% less fewer mortgages in April 2019 than in the same month a year earlier.

Jonathan Sealey, chief executive at Hope Capital, said: “In terms of the value, both simple refinance and equity remortgages are down.

“With a steady rise over the past few years in the trend for making home improvements rather than moving, this could suggest some homeowners looking to remortgage in order to add value to their homes ie for a larger equity withdrawal – are now looking to alternative funding for a more tailored service.

“Specialist lenders are continuing to see steady business coming through suggesting that customers increasingly turn to lenders who can offer them a more bespoke solution.”

By Michael Lloyd

Source: Mortgage Introducer

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Buy-to-let sector still offers opportunities

It is easy to forget that behind the scenes of the supposed landlord exodus, one in five UK households still rents privately and there are still attractive opportunities in the buy-to-let and build-to-rent sectors.

This truth is not lost on the slew of property investment platforms out there, which continue to grow, many of which are technically peer-to-peer firms or intermediaries rather than asset managers.

You might even say there has been an air of over-confidence, as an explosion in P2P property investment has sparked a flurry of interest from institutional investors.

However, lack of a track record coupled with lingering suspicions surrounding the wildly different range of approaches taken by such firms, has held the sector back.

It is not hard to see why — it is all about risk. At one end of the spectrum, some offer seemingly attractive returns riskier development projects without any concern for their performance.

At the other, you have asset managers with a vested interest in performance.

In every new fintech industry, harsh lessons are learned. Some models fall by the wayside and it is normally those that cut corners. Property investment platforms have not experienced a day of judgement like this yet.

Sky-high default rates sparked a wave of platform collapses in China this year and the Financial Times revealed in November that £112m of the £180m in Lendy’s loan book was at least one day overdue in October. Warning signs the day of reckoning may be closing in?

Natural selection is coming in 2019 and the defaulters will identify the fittest so advisers do not have to.

We just have to get the bloodletting out of the way first.

Source: FT Adviser

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The places where Buy to Let still pays off

North West and Liverpool are hotspots for property investors and amongst the places where Buy to Let still pays off.

A recent article on thisismoney.co.uk discusses how the North West’s comparatively strong rents, coupled by low house prices, makes it a buy-to-let hotspot right now.

As capital gains forecasts dampen in London and house price growth in the capital becomes worse than anywhere else in the country, investors are looking to other regions for attractive returns.

Totally Money compiles a regular buy-to-let investment report on the top towns and cities for property investors. It states that not only does Liverpool’s high rental demand make the city a dependable market for landlords, but its house prices are relatively cheap when compared to many other areas in the UK. All of this allows for fewer void periods for landlords and good yield returns.

Emma Cox of Shawbrook Bank commented: “Landlords have had a rough ride over the past few years with multiple tax changes. But our research shows that it’s not all doom and gloom for potential investors.”

The above shows Shawbrook’s ranking of Britain’s regions by rental yield, which measures average rents that could potentially be achieved against average house prices. The North West leads the yield ranking with an average yield of 5.4 per cent.

“Lower rental yields in London and affordability constraints for investors has driven interest North, where borrowers are chasing the yield and heading to locations with lower average house prices,” Emma Cox continued.

Buy-to-let mortgage rates continue to fall

Lenders are continuing to slash their buy-to-let mortgage rates in an attempt to lure in new business.

Average rates in the buy-to-let sector have dropped significantly since changes were originally introduced in 2015 – indicating how keen lenders are to get new business onto their books as demand drops.

For example, TSB is currently offering a two-year fixed rate deal at 1.30 per cent with a fee of £1,971 and a maximum loan-to-value of 60 per cent.

Sainsbury’s Bank has a three-year fixed rate deal at 1.49 per cent with a £2,021 fee at 60 per cent loan-to-value.

All the above, coupled with the recent Savills residential property forecasts report predicting that the North-South divide will be turned on its head during 2019 to 2023. The biggest price rises are predicted in the North West (21.6 %). So we hope you are just as excited about about investing in Northern locations as we are!

Source: Property118

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Limited company buy-to-let has changed the market

I wrote in an earlier post that buy-to-let was evolving at a pace and that the rush to incorporate so many investor borrowers would inevitably create a different looking market.

And so it has come to pass. According to Mortgages for Business’ Buy to Let Index, the number of buy-to-let lenders lending to limited companies has risen by 47% over the past year. 22 buy-to-let lenders now lend to limited companies – up from 15 in Q3 2017 and the total number of mortgage products available to them has more than doubled since Q3 2017 – from 263 to 628. The result has been that 44% of buy-to-let transactions now made by limited companies – up from 42% in Q2 2018

This change in market behaviour should not surprise us. We are only just over a year from last September’s changes issued by the Prudential Regulation Authority, the 3% stamp duty surcharge on second homes in April 2016 and a withdrawal of tax relief by 2020.

We’ve already seen that the more stringent rules on buy-to-let lending has meant the near two million ‘hobby’ landlords who own 15% of the housing market have found it increasingly difficult to raise finance from traditional lenders but many have also embraced the business model of Houses of Multiple Occupancy in an effort to improve yields unaware of the many more stringent rules that accompany these kinds of dwellings.

Limited company structures do not come without their challenges and costs for all concerned. They not only affect individual borrowers’ tax positions but also demand skills in lenders such as understanding how company structures and law affect lending positions.

Completely new companies have no trading history or track record of success upon which lenders can base their decisions. Without any credit history it’s hard to establish the chances of the loan being repaid. In these circumstances, the lenders that do consider such applications often ask for personal guarantee’s from the directors, so that should the mortgage not be repaid the directors become personally responsible.

There may be additional administrative costs related to operating as a limited company, and in some instances it can be more complicated to transfer property and assets. When a property is sold via a limited company, it is subject to corporation tax, rather than capital gains tax. While the rate of corporation tax is lower than the rate of capital gains tax, an individual benefits from the capital gains tax allowance, which does not apply to a company.

There is the expectation that people borrowing through companies realise there are no blurred lines. A limited company has its own legal personality, which is separate to the individuals who participate in it. Rent the company earns cannot be spent on things other than business activities without these becoming a taxable wage or benefit. Because the extraction of money has to be through salary and dividends that money is subject to rules under the companies act and there is tax to pay for the recipient/shareholder.

It is when things go wrong that expertise is really in demand. A company does not retain the same rights an individual in the law or in practice and these has implications for tenants and landlords. A lender that has lent money to fund the purchase of a borrower’s home may be sympathetic when circumstances cause a borrower to get into mortgage arrears.

Further, the mortgage lender has a regulatory duty to help that borrower address the problem. However, where money has been lent on what is effectively a commercial enterprise, the lender may not be prepared to listen to excuses and may be much quicker to initiate repossession proceedings once a borrower gets into mortgage arrears. In some cases where arrears have built up on a buy-to-let property, the lender may appoint receivers to administer the property and accept any rents being paid.

Clearly, proper management of these loans and the processes for recouping losses in the sector now requires levels of expertise previously not required. From seeing the opportunity to underwriting complicated company structures, lenders need commercial underwriters to assess properly the opportunity to lend and experienced professionals if things do not go according to plan.

Source: Mortgage Introducer

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Has there been a better time to be a buy-to-let investor?

Regular readers of The Motley Fool will know that we writers, broadly speaking, are not exactly cock-a-hoop over the buy-to-let sector.

A litany of issues, from painful tax changes to slowing (or even reversing) home price growth, from rising interest rates to inconvenient and even costly regulatory changes governing tenancies, mean that this type of property investment is now a minefield.

Having said that, some would argue that the financial market volatility of the past month shows how buying bricks and mortar is a much safer and more stable investment destination than stock investing, the sharp sell-off dragging both good and bad stocks through the floor.

And there’s room for plenty more pain to come down the road. The seeds of last month’s market panic, i.e. concerns over interest rate rises in the US choking off global growth allied with fears over the implications of President Trump’s trade wars with China, haven’t gone away. And other problems like the short- and long-term implications of Britain’s Brexit saga; the emergence of Cold War 2.0; and fiscal battles between Italy and EU lawmakers, add extra layers of fragility to the current trading climate.

Mortgage choices are rising… but so are costs
For risk-averse investors, now would appear to be a great time to get into buy-to-let investment, and particularly as the range of mortgage products available to landlords continues to grow, more than doubling over the past year, in fact.

And there’s been a slew of new products brought out in the past few days alone. Among the big movers, Atom Bank entered the rentals arena at the start of the week with the introduction of two- and five-year tracker mortgages, and Paragon Bank expanded its suite of products to include a specialised product for expat landlords and UK holiday lets. These moves followed digital lender Molo Finance entering the buy-to-let sector in late October.

Increased competition in the market should mean good news for consumers, of course. But investors need to be aware that right now mortgage costs are rising. A report from broker Property Master this week showed that the monthly cost of a two-year fixed rate £150,000 buy-to-let mortgage rose between £2 and £5 due to recent Bank of England interest rate rises, and between £4 and £5 for a five-year fixed rate product.

Sure, these additional costs are not exactly astronomical. But as Property Master pointed out, further rate rises from Threadneedle Street may be just around the corner, a scenario that would likely push mortgage costs still higher.

Stick with stocks
All things considered, I’m yet to be convinced that buy-to-let is a smart way to use your cash today. Irrespective of last month’s stock market sell-offs, investing in shares remains a vastly superior way of generating strong shareholder returns over a long time horizon, something that has been proven time and time again.

Sure, buy-to-let was a wise way to make your money work in years gone by as Britain’s homes shortages pushed property prices and rents through the roof. But the raft of increasing costs and ratcheted-up regulations make it quite a problematic investment arena, and one that is likely to get trickier. I for one will continue to shun the temptation of buy-to-let.

Source: Yahoo Finance UK