With Buy to Let (BTL) mortgage lending down 50% since April 2016 there is an argument that Landlords could certainly do with a boost. (Patrick Collinson, The Guardian, 22nd April 2017)
We have now come through the initial bedding in period since the Prudential Regulation Authority (PRA) stipulated from January 2017 BTL Lenders must use new higher stress test calculations to restrict what they can lend to first time and experienced landlords. This is on top of the 3% Stamp Duty levy introduced in April 2016 and a more penal method of calculating income tax due on rental income from April 2017. Is it any wonder new and existing Landlords have been ‘running to the hills’?
Whilst it may not feel like it to consumers, most aspects of BTL lending are still not regulated by the Financial Conduct Authority (FCA). The complications of arranging a BTL mortgage are now on par with a Residential mortgage. In my opinion we should have gone the ‘whole nine yards’ and regulated BTL when the new PRA requirements were introduced at the beginning of the year.
It’s encouraging to see BTL lenders now being able to apply a more flexible approach to lending limits if the consumer takes out a 5 year fixed rate. This is common sense as the mortgage payment, which is usually interest only for BTL, is fixed for 5 years and normally comes with a redemption penalty for the period. This should help Landlords who are serious about ‘bricks and mortar’ assets and in turn benefit Tenants as the scope for rents increasing lessens as the landlord has budgetary certainty for the fixed rate period. Could fixed rent Tenancy agreements for 5 years with fair break clauses become the norm?
With much additional noise coming from the various political parties about security of Tenure for Tenants in good quality accommodation, the BTL market is evolving. As the vast majority of BTL lending is arranged by Mortgage Brokers, as an industry we have a vital role play to keep abreast of changes and educate consumers.
Your home will be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate retail Buy to Lets, commercial loans and overseas mortgages.
Taking out a five-year deal could allow a landlord to borrow up to £15,000 more than a two-year fix.