Rising interest rates may strike fear in the hearts of would-be first time buyers, but what about the buy-to-let enthusiasts? We have seen some significant changes in the way buy-to-let mortgages are being sold and there are some interesting and fresh products on the market.
Arranging a mortgage on property bought as buy-to-let is different from the usual individual and personal mortgage. It is the projected income likely to be achieved from the property which governs the amount of money lent on the project and not the income of the buyer.
When it comes to searching for the all important loan, in the past lenders have usually looked for an expected income of around 130% of rental cover. This means that if the expected income from a property is around £1300 per month, then they would be most comfortable if mortgage outgoings were set at around £1000. It leaves a safety margin for periods when the property may have become unoccupied, or possibly in need of repairs or updating. Mainly due to the fact that there is evidence that buy-to-let borrowers are generally reliable and mortgage arrears are less than on residential mortgages, many lenders have reduced the requirement and in fact some will lend as much as 100%. This makes it easier for buyers to get into the market, but makes it more difficult for them to meet their lender’s rental cover demands.
The easing of restrictions when working out income versus outgoings can be seen here in offers from Bank of Ireland and Bristol & West Mortgages. Their rental cover is now reduced to 100% and worked out on fixed interest rates for three years and over. They also offer shorter term fixed rates (less than a year) and variable ones, again based on 100% rental cover, but caution is needed here as this makes financial planning more difficult. The maximum loan with these two lenders is 85%, up to £500,000. Abbey, BM Solutions and edeus are just three of the companies offering 85% mortgages, up to £1m. Their ceiling for lending per borrower is up to £2.5m and this is on a maximum of 15 properties. They have lowered their age limits down to 21.
As far as the landlord is concerned, many take the view that as long as the income from letting largely keeps up with the outgoings, even a small loss from time to time would not be too much of a disaster. This is taking into account the actual value of the property in view of the excellent rises we have seen in the past few years.
According to a recent report from one lender who specializes in the buy-to-let market, tenant demand overall is strong and many landlords are actively increasing their investment in this field. They see yields from rental holding firm or beginning to edge up over the next 12 months. They are confident that recent increases in interest rates point to more and more demand for rented accommodation. Back in the 1990’s when things were not looking so good for home buyers and negative equity was the buzz-phrase, buy-to-let boomed. The period of growth at this time was the biggest ever recorded.
It looks like a rosy future for buy-to-let investors. Maybe it’s time to think about it? An on-line broker will offer up-to-date unbiased advice and come up with the best deal around.
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