Buy To Let Finance Watch

[spyguy]

'But while borrowing via a limited company allows landlords to claim tax relief, concerns have been raised that higher interest rates on some products could ultimately lead to them paying more than they would as an individual.

This could have implications for brokers if clients who have borrowed via a limited company complain about the advice they received.'

So.... a ltdco loan is going to cost morethan paying 40% of your rent as tax....whod have thought....

As far as LtdCo complaining about advise - theyll get what they pay for.

[Bland Unsight]

1 hour ago, spyguy said:

So.... a ltdco loan is going to cost morethan paying 40% of your rent as tax....whod have thought....

As far as LtdCo complaining about advise - theyll get what they pay for.

Never bothered looking to this carefully but as best I understand matters mortgage brokers have conflicting incentives with regards to the quality of advice they give.

If they are conservative and also stick to the rules then they may lose business to competitors with a more optimistic/cowboy/crook mentality. However if they sail too close to the wind they can get struck off from the lender's panels. The whole business of being kicked off panels seems to be a bit Kafkaesque (linky) so I'm guessing that some mortgage brokers end up being interested in narratives about the next big mis-selling scandal as being on the wrong end of it could result in them being dropped from lending panels, and with that the end of their 'business'.

(As I understand matters falling from grace with the lenders played a role in the demise of Busta's brokerage, although the circumstances were different; some employees were carrying out old school mortgage fraud, link, and it was that fraud which led to Lloyds no longer accepting mortgage application from Busta's business. As the buy-to-let lending market in 2009 was basically BM Solutions (Lloyds) and The Mortgage Works (Nationwide) being dropped by Lloyds was the kiss of death.)

[JDI]

1 hour ago, spyguy said:

Forget 'racy'. Any lending outside of residential, 4x household income and 20% is rapidly becoming more specialised  - and expensive.

According to the Mail BTL mortgages are still very cheap - starting at 1.34% for a 2 year fix, it still has a long way to go before it's not viable.

http://www.thisismoney.co.uk/money/buytolet/article-5175575/Buy-let-mortgage-rates-cheap-lock-fix.html

 

[Bland Unsight]

12 minutes ago, Just_Do_It said:

According to the Mail BTL mortgages are still very cheap - starting at 1.34% for a 2 year fix, it still has a long way to go before it's not viable.

http://www.thisismoney.co.uk/money/buytolet/article-5175575/Buy-let-mortgage-rates-cheap-lock-fix.html

 

There's an important detail here which is that before the lending can happen it is assessed on the basis that the interest rate not the 'pay rate' (1.34% in your example) but was actually a so-called stress rate (typically 5.5%) and, for higher rate tax payers, at an interest cover ratio (mortgage interest/rent) of 145%.

Whilst an existing property may generate good income before tax at the kind of interest rates you quote (the pay rate) it would be impossible to get a loan to buy that property unless it was generating a much beefier so-called 'gross yield' (annual rental income/price) than is typically available in the market; you need a good yield to meet the interest cover ratio requirement at the stress rate.

This will have consequence for some buy-to-let investors when it comes to refinancing.

Neverwhere made a post about this the other day.

 

Edited January 1, 2018 by Beary McBearface

[JDI]

40 minutes ago, Beary McBearface said:

There's an important detail here which is that before the lending can happen it is assessed on the basis that the interest rate not the 'pay rate' (1.34% in your example) but was actually a so-called stress rate (typically 5.5%) and, for higher rate tax payers, at an interest cover ratio (mortgage interest/rent) of 145%.

Whilst an existing property may generate good income before tax at the kind of interest rates you quote (the pay rate) it would be impossible to get a loan to buy that property unless it was generating a much beefier so-called 'gross yield' (annual rental income/price) than is typically available in the market; you need a good yield to meet the interest cover ratio requirement at the stress rate.

This will have consequence for some buy-to-let investors when it comes to refinancing.

Neverwhere made a post about this the other day.

 

I agree with this, and that it will definitely make re-finanancing more difficult.  As it should be.

The point I was making was that BTL mortgages are not particularly specialist, or expensive. 

[UnconventionalWisdom]

2 hours ago, spyguy said:

Nice to see commercial lending rates (btl)  returning to where they ought to be - much higher than residential lending.

Forget 'racy'. Any lending outside of residential, 4x household income and 20% is rapidly becoming more specialised  - and expensive.

Great to see btl lending becoming more expensive but isn't the main problem that btl mortgages can be interest only and hence can be used to outbid residential mortgages? 

[spyguy]

2 minutes ago, UnconventionalWisdom said:

Great to see btl lending becoming more expensive but isn't the main problem that btl mortgages can be interest only and hence can be used to outbid residential mortgages? 

Not any more.

S24, lender limits, pra, etc

[Bland Unsight]

24 minutes ago, Just_Do_It said:

I agree with this, and that it will definitely make re-finanancing more difficult.  As it should be.

The point I was making was that BTL mortgages are not particularly specialist, or expensive. 

Get more four or more and see how that claim that they are not specialist or expensive works out for you.

[UnconventionalWisdom]

42 minutes ago, spyguy said:

Not any more.

S24, lender limits, pra, etc

Yep, I agree that you'd have to be an idiot to get into btl now but I'm sure there are still plenty of them that believe you can't go wrong with property and don't do their due diligence. 

The other day I saw a flat with an asking price (it'll probably go for much less) of 220k in my area where the average salary is 28k. There's no one who can afford it on 4x income, especially when you consider the people interested in 1 bedroom flats are probably on less than the average income. Surely these prices can't remain if mortgages were restricted to repayment ones. 

[Will!]

On 27/12/2017 at 10:40 AM, Ah-so said:

Quite - an HMO is unlikely to have any value to anyone other than an HMO landlord. HMO properties need to be high yielding and they are expensive to run and maintain, which may limit their price in the market. 

As noted above, the forced seller would probably need to discount the cost of reconverting the property back to a 3-bed house. And even then, it would still be limited to professional buyers rather than owner occupiers due to the time and costs of conversion.

Interesting.  I was looking at buying a flat (to live in) in Pimlico.  It's currently in the hands of a Law of Property Act receiver with three tenants on different Assured Shorthold Tenancy agreements, the shortest with a notice period of three months.  The LPA receiver specifies completion within 28 days of exchanging contracts and, as I understand it, doesn't have the power to give the tenants notice unless they break the terms of their AST agreements, which means that flat has to be sold with three tenants on different AST agreements in situ at time of completion.  It looks to me as though the flat can only be bought by someone who can get an HMO mortgage (even as a bridging loan) or a cash buyer.

The flat has been to auction once, where it didn't meet the reserve price. I suppose the reserve price is the outstanding mortgage so it looks to me like the mortgagee is stuck with a flat they cannot sell.

[Houdini]

36 minutes ago, Will! said:

Interesting.  I was looking at buying a flat (to live in) in Pimlico.  It's currently in the hands of a Law of Property Act receiver with three tenants on different Assured Shorthold Tenancy agreements, the shortest with a notice period of three months.  The LPA receiver specifies completion within 28 days of exchanging contracts and, as I understand it, doesn't have the power to give the tenants notice unless they break the terms of their AST agreements, which means that flat has to be sold with three tenants on different AST agreements in situ at time of completion.  It looks to me as though the flat can only be bought by someone who can get an HMO mortgage (even as a bridging loan) or a cash buyer.

The flat has been to auction once, where it didn't meet the reserve price. I suppose the reserve price is the outstanding mortgage so it looks to me like the mortgagee is stuck with a flat they cannot sell.

 I Don’t know any legal reason why they can’t give notice if they believe the money received as an empty property after lost rent would be greater than the tenanted  property.

equally I don’t think they have any reason to recover any more than necessary so it wouldnt surprise me if over time the reserve price dropped while the tenants were allowed to stay in situ. So if you aren’t in a hurry and like the location it may be worth keeping an eye on it.

[spyguy]

14 hours ago, Just_Do_It said:

I agree with this, and that it will definitely make re-finanancing more difficult.  As it should be.

The point I was making was that BTL mortgages are not particularly specialist, or expensive. 

But thats where you, the likes of NW, CovBS and Fergus are wrong.

Step back and think what an IO BTL loan - a non amortising commercial bridging loan.

A repayment BTL loan (v. rare) - a commercial loan.

A google of commercial bridging loans brings up various specialist finance houses. No high street banks came up.

I can guarantee that the terms will be very expensive and the loans will not be doled out 'Dave, our BTL mortgage specialist'.

And this is the problem. Banks, BoE, Fergus, etc, were classifying a product that belongs in the rare, expensive world of commercial finance, as a mass market, low risk product. IO BTL are not.

 

[JDI]

23 hours ago, Beary McBearface said:

Get more four or more and see how that claim that they are not specialist or expensive works out for you.

Unfortunately, most BTL landlords have less than 4 properties.  If these landlords can pick up new mortgages from high street banks at under 2% then it's not specialist or expensive enough.

[LittlePig]

6 minutes ago, Just_Do_It said:

Unfortunately, most BTL landlords have less than 4 properties.  If these landlords can pick up new mortgages from high street banks at under 2% then it's not specialist or expensive enough.

Please take your data free imaginings to the off topic or other similar reality free zone. This is far to a useful important thread for litter and noise. Data on the number and distribution of BTL loans has already been presented by Bland/Beary elsewhere.

[JDI]

9 hours ago, spyguy said:

But thats where you, the likes of NW, CovBS and Fergus are wrong.

Step back and think what an IO BTL loan - a non amortising commercial bridging loan.

A repayment BTL loan (v. rare) - a commercial loan.

A google of commercial bridging loans brings up various specialist finance houses. No high street banks came up.

I can guarantee that the terms will be very expensive and the loans will not be doled out 'Dave, our BTL mortgage specialist'.

And this is the problem. Banks, BoE, Fergus, etc, were classifying a product that belongs in the rare, expensive world of commercial finance, as a mass market, low risk product. IO BTL are not.

 

BTL mortgages under 2% are freely available from the high street for anyone with less than 4 properties, and enough rent coverage / equity.  This is hardly expensive.

As Beary points out it's harder for portfolio landlords.  In my opinion it should be hard for all BTL financing. 

[JDI]

2 minutes ago, LittlePig said:

Please take your data free imaginings to the off topic or other similar reality free zone. This is far to a useful important thread for litter and noise. Data on the number and distribution of BTL loans has already been presented by Bland/Beary elsewhere.

You're free to ignore my points.

Personally I don't think any BTL mortgages should exist at all.  Why any individual would leverage so much on house prices is beyond me.

[spyguy]

37 minutes ago, Just_Do_It said:

BTL mortgages under 2% are freely available from the high street for anyone with less than 4 properties, and enough rent coverage / equity.  This is hardly expensive.

As Beary points out it's harder for portfolio landlords.  In my opinion it should be hard for all BTL financing. 

My point, which ive been banging about for years, is that btl loans are grossly mispriced.

[Neverwhere]

On 01/01/2018 at 5:22 PM, Beary McBearface said:

Neverwhere made a post about this the other day.

Tl;dr version:

Quote

Market commentary June 2017

Chart 1: Proportion of buy-to-let remortgages, by re-leveraging status

Source: CML BTL mortgage survey

Quote

What next for buy-to-let? September 2016

Chart 1: Proportion of rented housing market viable at 75% LTV by property size

Source: Hometrack analysis

The highest ICR (155%) that the CML/Hometrack explore underestimates the reduction in BTL affordability as it won't allow affected landlords to break even once the tax changes are fully in force, as we can see from applying it to FreeTrader's example earlier in this thread:

Actual ICR's may need to be as high as 167% for higher rate taxpayers and 182% for additional rate taxpayers (h/t FreeTrader).

The more rental income a BTLer has the more likely they are to end up being a higher or additional rate taxpayer.

Around 40% of all BTL properties are owned by portfolio landlords with four or more properties; with the 2% of BTL landlords who own more than ten properties each accounting for 22% of all BTL loans (h/t Beary McBearface).

The CML/Hometrack analysis also fails to take into account the 3% SDLT surcharge for additional properties, upcoming LTV-sensitive capital requirements, and the potential impact of BTL margin call clauses in the event of price falls.

Edited January 2, 2018 by Neverwhere

[Neverwhere]

Basically, this is what the CML/Hometrack think will happen to landlords' ability to purchase rental properties with a 25% deposit based on 2016 prices, if they have to meet interest coverage ratios of 155%, (when we know that many of them will need to meet ICRs that are significantly higher than this):

[Houdini]

1 hour ago, spyguy said:

My point, which ive been banging about for years, is that btl loans are grossly mispriced.

History sadly (and only currently) shows that you statement is wrong as the one way trend / bet on house prices has means that for the past 20 years there has been little risk in underpricing io btl loans.

The fact that history is not a good guide for the future means that challenger banks won’t understand this until it’s too late.

[spyguy]

5 minutes ago, Houdini said:

History sadly (and only currently) shows that you statement is wrong as the one way trend / bet on house prices has means that for the past 20 years there has been little risk in underpricing io btl loans.

The fact that history is not a good guide for the future means that challenger banks won’t understand this until it’s too late.

I believe NR BTL book was one of yhe major things ghat brought it fown. Voids went up massuvrly, LL were defaulting on their btl repayments.

[Will!]

23 hours ago, Houdini said:

 I Don’t know any legal reason why they can’t give notice if they believe the money received as an empty property after lost rent would be greater than the tenanted  property.

equally I don’t think they have any reason to recover any more than necessary so it wouldnt surprise me if over time the reserve price dropped while the tenants were allowed to stay in situ. So if you aren’t in a hurry and like the location it may be worth keeping an eye on it.

Bizarrely, the asking price has just gone up by 5% and it's been re-listed for auction in February with tenants still in situ.  I'm not seeing their logic.

[Bland Unsight]

Lenders looking more carefully at borrowers tax affairs was an obvious consequence of section 24 and PRA SS13/16 but still good to see the chickens coming home to roost for some of the less scrupulous leveraged landlords.

Quote

The mortgage market is now paying more attention overall to landlords’ tax and income affairs and initiating difficult conversations with the client where it is needed, according to David Whittaker, chief executive of Mortgages for Business.

He said: “We’ve seen a number of clients where the story they’ve told us over the income and tax doesn’t match the numbers and had to file a couple of Suspicious Activity Reports where they declined to make use of the HMRC’s Let Property campaign since the new PRA rules came in.

Source: Mortgage Solutions, Brokers pulling-up landlords over tax affairs after new PRA rules, 8 January 2018

[Ash4781]

http://www.stockmarketwire.com/article/5841776/Paragon-Banking-Group-chairman-standing-down.html

“

Paragon Banking Group said chairman Bob Dench was standing down to take up a new position as chairman of The Co-operative Bank.

Paragon said it had well developed succession plans and a search for his replacement, both internally and externally, was already underway. 

Dench would join The Co-operative Bank on 14 March and would remain as Paragon chairman until his successor was appointed.

A further announcement will be made when appropriate.”

How far the co-op has come.

[Bland Unsight]

Nationwide published their 2017 Q3 interim management statement on the 9 February. For context here's how their stock of BTL lending has changed over the last few years:

Source: Nationwide annual reports and interim results

And now this in the 2017 Q3 Interim Management Statment (link); "specialist" mortgages means buy-to-let.

Quote

Residential mortgages include prime and specialist loans, with the specialist portfolio largely comprising buy to let (BTL) lending. Gross mortgage lending period on period has grown at a slower pace as a result of sustained competition and a reduction in BTL mortgage advances. In the period, gross mortgage lending reduced to £24.1 billion (Q3 2016/17: £26.2 billion) with approximately 90% (Q3 2016/17: 86%) of advances in the prime portfolio: £21.6 billion (Q3 2016/17: £22.5 billion). Following the affordability criteria changes we made last year, and the impacts of the stamp duty increase and regulation on the BTL market, gross BTL mortgage lending for the period reduced to £2.5 billion (Q3 2016/17: £3.7 billion). Net mortgage lending has decreased during the period reflecting lower gross mortgage advances and increased prime mortgage redemptions due to ongoing market competition. Net lending for prime mortgages was £4.3 billion (Q3 2016/17: £7.3 billion), and for specialist mortgages was a net redemption of £0.4 billion (Q3 2016/17: net lending £0.9 billion).

(Emphasis added)

Nationwide's stock of buy-to-let lending is shrinking.

 

Edited February 11, 2018 by Beary McBearface