Tuesday, 14 October 2008

A Review of Buy-to-Let Mortgages

In the past few days we have witnessed unprecedented intervention in the Banking sector by central governments both at home and abroad with more to follow. The result is that we will have fewer market participants and reduced competition. From over 2,000 BTL mortgages just over a year ago there are now only around 262 BTL mortgages from just 27 lenders.

Banks, in real terms, will be cash poor and will look to make strong returns on the money they lend. Banks will not look to attract any business that is deemed risky and will look increasingly at the strength of the applicant, their current commitments and ability to service those commitments.

Political pressure could mean sweeping changes to the availability, structure and pricing of BTL mortgage products as the Government and legislators take an active financial stake in the banking sector.

With some politicians and commentators blaming the BTL sector as a major contributory factor in the recent boom in house prices, it is not too outrageous to assume that the Government may seek to distance themselves and the banks that they support from active participation in the BTL sector. It is difficult to imagine the Government allowing banks that they have poured £billions into to lend that money to BTL landlords in preference to first time buyers and small businesses.

Rather the Government may look to capitalise on the current unrest in the housing market by encouraging and promoting wider social housing provision via large scale players in the private rental sector. It is notable that some of the larger developers have already concluded deals with housing associations to take up unsold stock.

All this turmoil leaves the BTL mortgage market in serious disarray. Today BTL interest rates range from 5.39% to a staggering 15.9%. Application fees have soared and can be as high as £2,000. Arrangement fees that were virtually unknown just 12 months ago now range from £690 to as much as 3.25% of the loan.

Today there is just one lender still offering an 85% loan to value BTL mortgage, just 6 companies are left offering 80% loan to value mortgages. It is only at 75% loan to value and below that there is anything approaching genuine choice.

Two lenders are actually paying BTL borrowers to take their mortgages to another lender. One of them has offered a staggering 30% rebate to one landlord to encourage him to find another lender.

Lenders who offer competitive rates find themselves swamped with enquiries and quickly withdraw them as their internal systems clog up. It is increasingly likely that lenders will offer limited tranches of money.

Landlords looking for good mortgage or re-mortgage products need to plan ahead. To ensure that you get these deals as they become available you need to start building a good working relationship with a specialist BTL broker now. Otherwise, by the time you find out that that a good deal is available, make an enquiry and complete an application form the chances are that the money will have gone. Some mortgage deals are now only available for just a few hours before they are withdrawn.

Some of the best BTL brokers are now charging small, upfront retainers. They are choosing to work only with experienced, serious landlords who are willing and able to plan ahead, and act quickly as attractive rates become available. Landlords who are waiting for the market to turn are beginning to find that they are being left behind and are finding that they are missing the best deals.

It is now more crucial than ever that landlords plan ahead. Many landlords are seeing their current mortgage deals coming to an end and need to ensure their cash flow is maintained.

At the same time growing numbers of landlords are taking advantage of the drop in house prices to increase their portfolios. History tells us that many successful landlords often made their most astute purchases during times of economic turmoil and as ever preparation is everything.

To be successful in securing funding in the coming months, Landlords must be able to demonstrate:

· A positive income stream be it rental, earned or a mixture of both (Landlords need to be able to evidence this income with tax returns, pay slips or confirmation from an accountant)
· Modest levels of unsecured personal debt (large credit card balances coupled with personal loans will not encourage lenders to extend further loans).
· Clean credit profile, commitments have been met to date
· Application process is key. Submitting an application with missing or incorrect information will almost certainly mean the application will fail.

It is highly unlikely that there will be an increase in the number of BTL mortgages in the coming months. Many experts are now predicting that little will change before the end of 2009 or even well into 2010. Similarly it is unlikely that BTL interest rates will fall any time soon. But there are still BTL mortgages available and those who plan ahead will get the best and most attractive rates.

If you would like to discuss your mortgage requirements with an expert BTL broker please follow this link Mortgages through NetRent.co.uk or call us now on 01352 759988.