The buy-to-let mortgage market appears to be bouncing back from both Brexit and the best efforts of the Chancellor to tax it out of existence. Perhaps landlords and letting agents are actually pretty resilient individuals who will make the best of a bad job and seek out fresh opportunities. Whatever the reason, there have been some interesting new developments in the mortgage market for those looking to buy rental property.
First up is New Street Mortgages. They are an online-only lender but they work through brokers and they have two interesting features in their business offer. The first is speed – they are promising that some borrowers could get their mortgage money in as little as five days after applying.
Second, they are are offering mortgages that are based on “verified underwriting” and not simply the run-of-the-mill credit scoring that is traditionally used by most high-street mortgage lenders. According to the company, this means they can consider applications from people whose circumstances mean that they might get a lower score on the standard credit rating measurements.
They will make their lending decisions on the basis of the credit profile of the specific borrower, unlike traditional lenders who use credit scoring methods. This can be a disadvantage to those who are self employed or who have an income with peaks and troughs over the financial year. This is good news, because it balances the more stringent affordability tests being used on those who want to buy properties to rent out.
New Street has partnered with several major mortgage brokers including John Charcol, London and Country, and LSL, specifically to provide mortgages for buy-to-let based on personal credit profiles rather than credit scores. The firm describes its method of assessing applications for mortgages as driven by intelligent analysis that gives an informed credit profile. It says that this means it can be more flexible when it comes to lending criteria.
More Mortgages Available for Older Borrowers
One example of this is that they don’t have an upper age limit for lending. Pensioners with a completely reliable income from pensions, often index-linked, have found themselves cut out of the market purely on the basis that they don’t fit the lender’s traditional profiles. These frequently don’t allow lending beyond a completely arbitrary upper age limit. Yet these borrowers may be excellent risks, in that they are sure of receiving their income every month, and can’t be made redundant.
The approach from New Street may mean a fairer deal for these older borrowers. Similarly, both self-employed and employed applicants will be assessed on their risk profile, not on arbitrary lending criteria.
Anyone thinking of approaching New Street for a mortgage will need to check their rates against competitors, and weigh up where they are likely to get the best deal.
Surge in Mortgages to Limited Companies
The other development in the buy-to-let mortgage market has been a surge in the number of limited companies applying for loans. This means that many landlords have not waited around but have rushed to beat the tax hikes by setting up limited companies, and that they are now using these vehicles to add to their property portfolios.
The specialist broker, Mortgages for Business, quoted on the This Is Money website, has noted that nearly 40% of its applications last December were from limited companies. These developments in the mortgage market for landlords wanting to let through limited companies will certainly be welcome. Previously, limited company mortgages were subject to extra fees and often charged at a higher interest rate, but this is changing because of the higher volume of business following the tax changes.
However landlords do need to be aware of the costs and risks of doing this. Although companies can still get interest relief on the mortgage amount and therefore only have to pay tax on the profits from their rental, there are many complications. Only businesses which have more than 15 rental properties can get exemption from the 3% extra stamp duty imposed by the Chancellor.
There are many other tax and legal implications, so this is an area where you definitely need to get professional advice before acting. Similarly, if you’re a landlord in Moston, use a Moston based agent who knows the local area well and can give sound advice.
Nevertheless, the health of the buy-to-let mortgage market in these new forms is an indication that buy-to-let is far from over.