The pressure’s on for remortgaging by buy-to-let landlords for three strong reasons:
- Introduction of tougher buy-to-let criteria this Autumn
- Current improved choice of buy-to-let remortgaging products
- Upcoming changes to buy-to-let legislation
If you’re a buy-to-let landlord, you may be feeling you’re part of a somewhat targeted group right now.
Across Britain, buy-to-let investors are feeling the heat. They’ve seen a stamp duty surcharge and harsher rules on lending.
Since April the government began to phase out the generous tax relief on mortgage interest payments.
That’s meant landlords can longer simply to subtract the interest on their home loans when working out their tax bill.
Now, they must pay tax on their total income — including rent — then ask HMRC for a tax credit of 20 per cent.
1) Introduction of tougher buy-to-let criteria this Autumn
The upcoming tightening of lending criteria for buy-to-let landlords is the latest measure by the Bank of England’s Prudential Regulation Authority (PRA) to slow down the buy-to-let market.
The first phase saw stricter affordability tests, including a stress test on interest rate rises, for landlords.
The PRA is now to demand changes to the way in which buy-to-let mortgage applications are underwritten. This will affect portfolio landlords most. It’s been spurred by evidence that arrears rates increase as portfolio size grows.
From September 30, if you’re a borrower considered a portfolio landlord (with four properties or more), you’ll be required to jump through more hoops to pass specialist affordability checks.
It’s not clear exactly how lenders will apply the guidelines but most likely all of the following will be looked at:
- Your property investment experience
- Your combined mortgage borrowing for your portfolio
- Your assets and liabilities, including tax liability
- The merits of any new lending in context of your existing buy-to-let portfolio,along with your business plan
- Historical and future expected cash flow
- Your income, both from property and elsewhere
So you need to get your paperwork prepared. You’ll need an up-to-date property portfolio spreadsheet, a business plan, cash flow forecasts, your last three months’ bank statements, submitted tax returns, and probably income and expenditure statements for your portfolio.
It’s not all bad news however. Market demand is supply based and right now that’s one thing that’s actually working in existing landlords favour.
That’s because diminishing demand for new buy-to-let loans has driven many lenders to slash their mortgage rates.
The average fixed buy-to-let rate is down from both the start of the year (3.34%) and last August (3.53%), standing at 3.22% in August 2017.
Of course, you have to meet the lending criteria however.
3) Upcoming changes to buy-to-let legislation
The National Landlords Association (NLA) is advising any landlords thinking about remortgaging not to delay.
The Head of Policy at the NLA, Chris Norris, says: “Since the PRA regulations were introduced in January, the marketplace is looking considerably more complex. It was always likely that lenders would start to demand more evidence from applicants, and landlords are already feeling they have to go further to prove that they can afford finance.
“Changes to buy-to-let taxation will eat away at many landlords’ profits and make it more challenging for them to manage their businesses. As a result, many are looking to limit their exposure to the changes, which is why we’ve seen a rise in remortgaging.”
He adds: “However, the situation is due to worsen from September and, while it may not be financially advantageous for everyone, if you’re considering remortgaging or expanding your portfolio, then do so now to avoid any further difficulties”.
If you’re a buy-to-let landlord and would like some help navigating these complexities for remortgaging, we will be happy to help you here.Labels: buy to let re-mortgage, buy-to-let legislation, buy-to-let mortgage, help to buy re-mortgage, remortgaging for buy-to-let landlords
