The Future for Buy to Let Loans and Mortgages

Whilst one or two new lenders have appeared on the blocks in the last quarter of 2010, the overall picture of availability of mortgages in the world of buy to let lending still looks pretty subdued.

It is not so much the level of interest rates (which are low by historic standards) that is the problem. Rather, it is the high margins over base rate, the high level of deposits needed to get a half decent rate and the high “application fees” that are the stumbling blocks.

One of the cheapest lenders is the Bank of China (BOC). They have a variable rate of 3.38% over base rate (i.e. a current pay rate of 3.88%) for life, an arrangement fee of £1,695 (subject to loan amount) and a valuation fee of £275.

I like the low arrangement fees with this deal and the valuation fee is below what most other lenders charge but, even with this mortgage, the margin on the “follow on” rate is 3.38% above base which will mean a landlord will have to consider very carefully what happens if base rates rise (as they surely will.)

Sure, an alternative is to take out a fixed rate, but all fixes are limited in time and sooner or later landlords will end up on the lender’s standard variable rate or a follow on rate anyway.

But what I really like about the BOC deal is that at least they are pegging future interest rates for to the Bank of England Base rate.

A few other lenders still do this but increasingly lenders are setting the “follow on rate” for buy to let mortgages at an arbitrary Standard Variable Rate (which is usually not itself linked to Bank of England base rate.) In other words you are at the mercy of the lender in the long term – i.e. once the initial discounted or fixed term deal has ended.

I don’t like this trend at all and unless the alternative is a great deal with a big provider whose mortgage pricing I can trust to not be too wildly out of line, I will always prefer to plump for a rate where the follow on rate is linked to the BOE base rate because at least that way I get some certainty on rates over the time horizon of the mortgage.

Pay Back

Talking of rates, the Council of Mortgage Lenders (CML) has said that from April next year onwards, lenders will begin to have to repay the funding advanced through official support schemes. This is likely to limit the availability of credit to support mortgage lending next year and beyond.

This will not be good news for any borrower – buy to let or residential – and we could see the overall levels of rates rise even more and lending decisions become even tighter.

The CML has also recently taken another swipe at the Financial Services Authority, saying that its ongoing Mortgage Market Review which is intended to herald an era of ‘sensible lending’ (some fear this will mean ‘not much lending’) – “continues to be a major and unhelpful source of uncertainty for the lending industry”.

They also said, “Firms do not know when the FSA will issue firm rules or whether it will modify its current excessively risk-averse approach. This uncertainty will itself reinforce lenders’ caution.”

I have a feeling that the FSA review will not turn out to be as bad as all that and the CML’s words will win the day in Whitehall. Certainly, the government seems to be making noises that would seem to indicate that the FSA should “go easy.” Watch this space!

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information and I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily we are  consultants to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them with their landlord facing or buy to let product strategies, marketing and services.

This work includes helping banks improve their buy to let mortgage lending practices and helping housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

We also write for property websites and we are regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can use the tags and categories at the bottom of each post and over to the right to read blog posts on related posts OR just click on the categories and use the pull down menu over to the top right of this page.

If you want to reply:

If you are on the URL for this specific post, at the bottom of the post, you should see a space to “Leave a Reply.”

If you are on the Blog Home Page, go to the very end of this specific post and biog (after the tags) and click on “No Comments” which should open a Reply Box. (Spammers please note: We delete all spam.)

THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free NEWSLETTER containing regular news for landlords and details of our Events simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails.

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. Ask for details.

This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2011.

Tags: , , , ,

2 Responses to “The Future for Buy to Let Loans and Mortgages”

  1. James Ball says:

    Hi
    Thanks for the report, a few things you need to take note of when looking at Bank of China is that they do not like professional landlords or property developers, there is also a minimum income requirement which must be proved and you must take the loan on a capital and interest basis. They do have some quirks which differ to more well known lenders. If you would like to know more please get in touch jball@lannercapital.co.uk .

    thanks
    James

  2. admin says:

    Thanks for that James
    I think one of the Bank Of China’s odd quirks that you may be referring too is that they use an imputed interest rate of 8% to work the rent to interest calculation on (bad as it is pretty high compared to current intrest rates), though they only require rent to be 100%. i.e. equal to the actual interest costs (which is good as it compares favourably to 125% which most other lenders require.)
    Kind regards
    David Lawrenson