As of 1st October last year, new lending criteria came into effect for ‘portfolio’ landlords, affecting anyone with four or more mortgaged Buy to Let properties. Now, when it comes to applying for a new mortgage or a remortgage, the total borrowing across the whole portfolio must be no more than 75% of its value*.
Although the majority of landlords have overall borrowing of less than 60% (according to the Council of Mortgage Lenders’ 2016 landlord survey), there are still a number who are on high LTV deals that were available before the credit crunch. Some of them borrowed up to 90% and if those properties haven’t increased enough in value over the last decade, the next few years could prove difficult if they need or want to refinance.
If you’re one of those landlords that’s highly leveraged and you had counted on being able to release equity to fund capital improvements or repairs, you’re probably going to need to rethink your strategy. And if you took out a 90% LTV mortgage that’s now coming to the end of its term, there may not be enough equity in the property to refinance at 75% LTV. For example:
Purchase price in Jan 2008 £200,000
90% LTV mortgage (int. only) £180,000
Value in 2018 £235,740
(average UK house price increased by 17.87% between Q1 2008 and Q4 2017)
75% max LTV mortgage £176,805
In this case, the landlord would be unable to remortgage without injecting more capital, as under the new rules the maximum that they could borrow is less than they originally borrowed, and in this example, currently have outstanding.
So this new limit on portfolio borrowing means some landlords may wish to start to reinvest rental profits into paying down mortgage loans to reduce their overall LTV, rather than taking income. Those whose mortgage terms are coming to an end might be forced to sell if there isn’t enough equity in the property to refinance and they don’t have any spare capital to reduce their existing borrowing.
If you’ve got four or more properties and are looking to raise more capital against them, it’s sensible that you take the following steps right away:
• Check the status of each of your mortgages: the LTV, the term remaining and the outstanding loan amount
• Get an up to date valuation on each property - you can find a local RICS surveyor at https://www.esurv.co.uk/ alternatively, you can use the Your Move instant online valuation tool here >
• Using the valuations and outstanding borrowing figures, calculate the level of borrowing on each property and on your portfolio as a whole
• If the total borrowing is above 75% LTV, you need to decide on next steps and look at options for making sure your portfolio is viable into the future.
Because there’s so much to consider, and with the extra criteria that lenders are now asking ‘portfolio’ borrowers to fulfil on their mortgage applications, it’s wise not to try to handle it yourself. Even the most experienced landlords probably won’t know about or understand every aspect of applying for and progressing a mortgage under the new rules. That means you can waste a lot of time and effort trying to work your way through your options, only to end up with a deal that a broker could easily better. Importantly, you might not provide all the information that the lender requires in the right way and could accidentally leave out things that are critical to securing the right mortgage.
So consult a specialist Buy to Let mortgage broker and a financial advisor, who can look at all your assets and give you expert, professional advice on the best way forward for you.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
This firm usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.
If you would like a free portfolio review, our team of mortgage brokers are here to help. Just call into your local Your Move branch or contact the team via our website at https://www.your-move.co.uk/mortgages .
The Profile of UK Private Landlords
UK House Price Data since 1952