The long haul perspective for Landlords and financing

The Budget was a massive disappointment for Landlords. There had been hopes for a reversal of the incoming changes to tax relief on mortgage interest and stamp duty rates.  Unfortunately, there were no such U-turns here.

However existing Landlords and Portfolio owners can perhaps consider some of the positives and options:

House prices are up 6.5% year on year to Jan 2017 in England with the average price of a house now at £235,000.  Given the challenges to bottom lines it begs the question what is the scope for equity growth for individual property locations.  There are now very limited areas and vehicles to invest in where we are able to see returns of even 5% in real terms with low risk investments often resulting in limited gains.

Rental properties however, are mostly in short supply and demand remains high and climbing.

Currently the buy to Let market is being boosted by falling mortgage rates. The average two year fixed rate fell to 2.75% in February down from 2.82% in January. Record low rates are giving some landlords some breathing room for the hike in potential tax takes over the next few years and the extra costs of adding property into Portfolios.

Examples of current Buy to Let 2 year fixed rates are:

• Santander                     1.44%
• Platform                      1.54%
• Godiva                        1.59%
• Mortgage Works        1.59%
• Accord Mortgages      1.59%

Arrangement fees vary and the above are Loan to Value driven.

Alternatively for the committed and in it for the “long haul” it may be worth considering a longer term fix.

There are some competitive 5 year fixed rates available even up to 75% LTV. This could provide peace of mind given that you would not have to be concerned about ever changing criteria and that PRA rental income ratio minimums are not applied in the same way with some Lenders currently meaning you can borrow more against rental income.

This of course may well change in the future and leaves the way clear at the moment to seriously consider fixing for the longer term.  Fees and expense will also be reduced by this approach, charged less frequently.  The added fly in the ointment will always be Lenders changing their criteria without prior notice which often challenges property investor business plans for the immediate future.

Examples of current Buy to Let 5 year fixed rates are:

• Barclays                           2.49%
• Leeds                                2.75%
• Aldermore                       2.98%
• Barclays                           2.99%
• The Mortgage Works    2.99%

Arrangement fees vary and the above are Loan to Value driven

The option of investing in the name of a Limited company still provides a choice of reasonable rates with some Lenders even offering the same rates as for individuals.

One long standing constant is the Lenders will still be jockeying for market share and this should keep the rates and fees competitive even if loan to values are restricted due to the higher stress test rates applied on the rental receipts under the new PRA rules.

Never has it been so true the statement of “always expect the unexpected” which seems to apply more and more to the Investment Property market at the moment.  Securing the best opportunities where they appear is worth considering.

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