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The role of mortgages in the UK buy to let sector

The UK buy to let mortgage market has changed significantly in recent years. As such, the Surrenden Invest team has consulted with mortgage expert Anthony Rose of LDNfinance for an up-to-date view of where the market is at, from interest rates to typical terms.

Given the changes to the UK mortgage market in recent years, is it still possible to get a buy to let mortgage?

The buy to let market has undoubtedly changed in recent years but it has been boosted by a large number of specialist lenders entering the market and existing lenders improving their offering. We have seen a sizeable shift towards clients purchasing using a Limited Company structure rather than in a personal name and mortgage lenders have been quick to respond to this with new offerings.

Who are the major providers offering B2L mortgages today?

Where buy to let finance has become very specialist, there is a greater spread of lenders than there used to be. However, the main lenders, by market share, will be BM Solutions, TMW, Barclays, NatWest and Santander.

What interest rates are they offering?

Buy to let rates are as competitive as they have ever been. Clients with large deposits can potentially access interest rates starting at 1.5%. In more specialist situations, such as non-standard properties or non-UK residents, rates can go up to around 6%.

What do the typical terms range from/to?

Most buy to let buyers historically preferred two-year terms due to the flexibility these offer. However, many lenders are now offering higher loan sizes if a five-year option is taken and this is proving very popular with clients as they can reduce the level of deposit they need to put down on the property purchase, which can either free up funds or may mean they can purchase more than one buy to let at a time.

What is the typical deposit required to be put down from the buyer?

For the right buyer and right property there are options with a 20% deposit, but most mainstream lenders require a 25% deposit. A lot of clients are opting to put down a higher deposit, of up to 40%, to secure more favourable terms.

Can you talk us through the new lending criteria that have been introduced and what they mean for investors looking to secure a mortgage?

Changes to buy to let taxation have meant lenders now use more stringent calculations to determine how much they will lend versus a given rent. For many clients, this means they will need to increase their deposit. However, with an increase in competition, especially from specialist providers, an experienced broker should be able to offer the right solution.

What other eligibility criteria do buyers need to meet?

Generally, buy to let lenders prefer people to have a personal income outside of rent received, as well as being the owner of their own main residence. Despite that, there are options available for first time buyers, non-UK nationals and most other situations with the correctly chosen lender.

What should potential investors budget in terms of fees/charges when taking a mortgage?

Fees can differ greatly depending on the lender and type of mortgage product chosen. A mortgage adviser should always consider all fees when recommending a product. The main consideration for property investors when considering fees in the current climate is the increased Stamp Duty levy for additional properties.

What impact has the first base rate rise in a decade had on the market?

As buy to let rates are so competitive, there has been no noticeable difference in the products on offer. In some cases, property investors have brought forward their plans to purchase another buy to let as they believe the market is strengthening.

Why do you feel that obtaining a mortgage to invest in UK buy to let remains a good choice?

With mortgage rates still near historical lows, the cost of funding a buy to let with a mortgage, compared to buying it fully with cash, is the preferred option for most investors.

What would be your top tip for any investor looking to secure a buy to let mortgage?

The most important thing is to engage with an experienced broker as early in the process as possible to secure the right funding. The recent criteria and taxation changes have meant buyers need to explore all options before making their offer.

For further details email us at: info@surrendeninvest.com or call us on: 0203 3726 499

UK Landlords Face Prison for Failing to Check Immigration Documents

Last week, the Right To Rent legislation was updated and landlords now face much stricter penalties if they neglect to properly check a tenant’s residency status. Failure to carry out the required immigration checks could result in a prison sentence.

The Right To Rent rules were first delivered in February 2015, and required all landlords and letting agents to carry out immigration checks on prospective tenants before agreeing a tenancy. Initially, there was a fine of £3,000 for anybody who failed to do this.

This month, the rules were changed and significantly harsher penalties announced. In December 2015, the Home Office created four new criminal offences that extend the previous punishments for failing to manage illegal immigrants. Landlords can now be subject to a fine, a five year prison sentence, or both, if they are found to be persistently breaching the rules, or if they fail to evict illegal immigrants from a property. The criminal offences fall under the Proceeds of Crime Act.

The Home Office can now also force landlords to evict tenants if they are not allowed to rent a property in the UK. While the Home Office has emphasised that the penalties are for repeat offenders, any landlord could be prosecuted under the new rules.

Illegal immigrants have no rights to rent, and this could include people who have outstayed a visa or who arrived as an illegal immigrant.

What penalties do landlords face?
Landlords may be prosecuted if they are found to be allowing an adult to occupy a property as their main home, if the said adult does not have the right to reside in the UK. Therefore, landlords will now need to check the passports and visa papers of every person over the age of 18 years who wishes to stay in a property.

The new rules do not apply if a tenant was occupying a property before February 2016, but all new tenants must be fully checked. If the Home Office raises a concern, it is the landlord’s responsibility to evict an illegal immigrant, otherwise they will face prosecution.

Before these changes, landlords were not able to evict illegal immigrants, but they will now be able to do so, and in some cases, will be able to ask them to leave the property without a court order.

The Residential Landlords Association (RLA) says that landlords are normally required to do these checks, but it is possible to pass on the responsibility to a letting agent, as long as there is a written agreement. “This means that the agreement between the landlord and the agent must specifically refer to who is responsible for performing right to rent checks. If the agreement is silent on this, then the landlord will be responsible. Landlords and agents may wish to reconsider their current agreements as a result,” said a RLA spokesman.

David Cox, from the Association of Residential Letting Agents (ARLA), says that these changes are only welcome if they are used to target landlords who deliberately harbour illegal immigrants in poor quality housing at inflated prices.

All buy-to-let investors need to be aware of these new rules, as without a written agreement in place with an agent to carry out these checks, landlords could face prosecution. Unscrupulous agents who cut corners to save some money could land their landlord clients in deep trouble.

How To Limit Void Periods

Lengthy void periods are every landlord’s greatest fear. Whenever a rental property is empty it is known in the property investment business as being a void, or vacant, period. This is not only bad for the landlord and agent, who will be receiving no income during this period, but it also puts the property itself at risk.

There are several actions you can take to reduce the risk of dealing with void periods. In some ways, these suggestions are very similar to those an estate agent would provide when selling a property.

Set a competitive price
Prices can fluctuate rapidly, and they do go down as well as up. If you are struggling to find a tenant it may be because your property is no longer competitively-priced. Analyse the market and adjust your price accordingly.

Property condition
An older property that has not been decorated for several years will struggle to attract tenants. Today’s tenants are much fussier than they were a decade or so ago, and expect properties to be freshly painted, have exceptionally clean carpets, immaculate bathrooms and well-fitted and well-equipped kitchens. Often an older property has to compete with new apartments that are fitted out with all the latest conveniences, so bear this in mind.

Get a Good Agent
A good agent will work hard to find a tenant. Choose an ARLA licensed agent who already rents similar properties to yours. Agents often get returning customers, and if their usual property is unavailable, yours may be placed next on the agent’s list.

Don’t take the lowest agent fee
It is not always wise to hire the cheapest agent. The highest fees do often signify better quality work. Ultimately, you need your property rented – 25% lower fees are not a good deal when the property is empty for three months a year.

Negotiate
Be open to accepting offers. If you receive a lower offer, negotiate the terms – perhaps you could consider a longer fixed-term tenancy? It is better to take a lower rate if you have a guaranteed income for the next 12 months.

Speak to your insurance company
Another change, due to come in soon, is more stringent tests for buy to let mortgages, which is likely to further reduce the number of people who will be able to invest in a rental property.

If it looks like your property will remain void for a while, ask your insurance company if they can reduce your premiums.

Finally, some agents offer vacant management services, so before agreeing terms with an agent, ask what happens if there is a void period. Will they continue to charge a monthly fee? How hard will they work to proactively find a new tenant? Will they carry out monthly visits to check that the property is safe and secure, pick up post and check meter readings?

The rental market is very competitive, and with high house prices and economic uncertainty, more people than ever before are renting accommodation in the UK. Be flexible and keep a close eye on the markets and stay in constant contact with your agent. Listen to their advice too and act on changing marketing conditions quickly to stay ahead of the competition.

What The Autumn Statement Means for Property Investors

The Chancellor delivered his Autumn Statement last week, and while Phillip Hammond painted a poor outlook for the UK’s work force, there was some positive news for the property market. Let’s take a look at the key points that affect us.

Letting Fees
The Chancellor announced a ban on letting agent fees, which have spiralled in recent years to put an unfair burden on tenants. Hammond said: “in the private rental market, letting agents are currently able to charge unregulated fees to tenants. We have seen these fees spiral, often to hundreds of pounds. This is wrong. Landlords appoint letting agents and landlords should meet their fees. So I can announce today that we will ban fees to tenants as soon as possible.”

Although many letting agents feel that this is unfair, it does seem that there is indeed a problem when the current system can see tenants charged up to £650 just for the privilege of signing a letting agreement.

The head of the Association of Residential Letting Agents (ARLA) has warned that agents will simply increase their landlord charges, which may see a rise in rents to cover the costs.

However, improvements in regulation can benefit the buy-to-let market, as tenants will have greater confidence in the rental system. Agents that are charging reasonable rates should experience no negative effect following this change, and for landlords this has an additional advantage – agents will become more competitive and more customer focussed, which will further improve customer confidence.

Great customer confidence will see a rise in rental agreements, which means more competition and higher rents. It is likely that tenants will end up paying more, and more of it will be paid to landlords.

Better Land for Development
The Chancellor also announced that the government will invest in major infrastructure projects to help improve the quality of housing developments. Developers have complained that a lack of quality infrastructure in the form of roads and facilities makes selling new homes difficult.

There has been a rise in off-plan property investment, both from domestic and overseas investors, since the Brexit vote. This news will likely trigger new building projects.

A Brighter 2017
Although the Autumn Statement carried a fair amount of bad news, the Chancellor has decided that house building should play a major role in economic recovery. A change in the letting laws and a promise to improve the infrastructure surrounding housing developments is great news for the property market, and property investors, landlords, letting agents, and tenants, should all benefit from these changes.