Buy to Let Mortgages « LettingFocus

Archive for the ‘Buy to Let Mortgages’ Category

Mortgage Fraud Buy to Let Lending and Property Clubs

Monday, February 7th, 2011

My blog post last week (about what mortgage companies could do to support landlords more), generated 27 emails from managers at buy to let mortgage lenders and ten from landlords.

One aspect that I referred to, in passing, was how the mortgage lenders had been “behind the play” in terms of understanding how bad buy to let mortgage lending and mortgage fraud was being carried out in respect of below market value (BMV) deals financed by techniques such as Bridging Loans and Next Day Remortgages.

I have written at length about this in other blog posts, so do not propose to go into it again here. All I will say here is that the mortgage companies could still do a lot more and do it a whole lot better.

To assist my understanding of what mortgage lending banks do today and how they assess risk, I now subscribe to “Mortgage Finance Gazette” – a publication widely read by those concerned with the business of making mortgage loans with a readership including mortgage companies, mortgage brokers, valuers and conveyancing solicitors.

A lot of the talk in this magazine these days is about mortgage fraud and bad lending – who was responsible for it happening in the past, who is going to pay for the past mistakes and how to avoid making mistakes in the future.

Of course, this is all rather late in the day, but “better late than never” I guess. But there seems to me to still be a long way for the mortgage lenders to travel.

The Latest Wheeze

I’m not a fraud expert but I have said many times that if the mortgage companies want to see how they might be taken to the cleaners in the future, they really ought to tear themselves out of their offices and get down to see the latest wheeze the “Get Rich Quick in Property” advisors are coming up with at the various “free events” that they put on to attract the more “hands off” (some would say, lazy) investor.

Of course property advice from property clubs is not regulated and at these events there seems a never ending stream of “investors” ready to hand over large amounts of cash to advisors who claim they can source “Below Market Value” properties for them. At least four of these firms have now gone bust taking a lot of the “investors” cash with them. (If you are an “investor” and you wish to buy property this way, please check out the trading position of the “advisor” at Companies House first and never hand over large amounts of money to an advisor to source a portfolio of properties for you. If you really are tempted, at least do it on a “one property at a time basis” only.)

Strange Financing Techniques

Why should the mortgage lenders attend these types of events?

Because a lot of the time the deals the “advisers” propose using strange financing techniques which they sometimes try to run in parallel with a straight mortgage application.

Not all the property advisors are bad. Far from it. But if I was a lender I would like to know about such techniques and yet, mortgage lenders are conspicuous by their absence at the events.

In the last edition of Mortgage Finance Gazette, one expert was still talking about Next Day Remortgages and Back to Back Bridging Loans, but the game has already moved on – to Lease Options and other techniques.

And yet, how many lenders and their advisors are even aware of these new techniques?

My local building society had to be bailed out and is now in the process of changing its name – and it had to do it primarily because of bad lending on buy to let (which also included some fraud.)

All mortgage lenders need to sharpen up their game to avoid the same fate in the future.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector expertise 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 (to Jan 2011).

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 procure supply of properties from 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 Information on a coaching basis.

AT OUR WEBSITE LETTINGFOCUS.COM:

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Tags: Below Market Value Property, BMV, Buy to Let Mortgages, Get Rich in Property, Mortage fraud and buy to let, Mortgage Finance Gazette, Mortgage Fraud, Next Day Remortgages, Property Clubs, Property Lease Options and Rent to Buy
Posted in BMV, Below Market Value Property, Buy to Let Mortgage Fraud, Buy to Let Mortgage Regulation, Buy to Let Mortgage Strategy, Buy to Let Mortgages, Get Rich in Property, Property Clubs, Property Lease Options, Property Lease Options and Rent to Buy, Same And Next Day Remortgages | Comments Off

Landlords Still Wait for Advice from Buy to Let Mortgage Companies

Monday, January 31st, 2011

Mortgage companies writing buy to let mortgages could do more to reduce the possibility of future arrears.

It is a subject that we have written about extensively before at this blog, not least because the activities of the lenders exasperates not just would be borrowers but also mortgage brokers who often find many of the activities of the lenders hard to fathom. (To see what brokers think of mortgage lenders take a look at some of the comments posted on line at sites like “Mortgage Strategy.”)

I am adding to my own portfolio of properties and it’s clear to me that the mortgage lenders’ requirements have got even tighter than they were the last time I bought 15 months ago.

Certainly, the days when loans were handed out to landlords with just a credit check and a proof of valuation and rental income for the property to be mortgaged are long gone.

But that, is of course, a good thing, because lending practices in buy to let in the past were perhaps not as thorough as they should have been.

Information Vacuum

But while lenders now require a lot of info about borrowers before they will lend they still don’t require their borrowers to actually know much about the business of being a landlord.

The fact is that today, most landlords taking out a buy to let mortgage loan today are still given very little (or no) guidance at all from a mortgage company about how to make a success of the now very complex business of letting a property successfully and meeting their legal responsibilities as landlords.

In around 40% of lets the tenant is found by the landlord with no letting agent involvement. These landlords will their best to find the tenant, “reference check” them (to weed out potential problem tenants) and complete all the other administrative tasks too, with varying levels of success.

And for those landlords who do use letting agents, the quality of advice received is mixed at best. Whilst some agents are excellent there are also rogue letting agents who are more focused on their own incomes than in providing quality advice or even finding long term reliable tenants for the landlord.

Indeed, some rogue letting agents will actually structure their fee tariff so as to “churn” tenants in order to increase fees from landlords.

Advice from mortgage brokers is also scant. Most mortgage brokers are not set up to give detailed advice to landlords on how they can run their business successfully, (though some, being landlords themselves, will occasionally impart some knowledge informally for their landlord clients.)

Associations of Landlords

Today, less than 30,000 landlords are in a landlords association, just over 25,000 have bought my book and maybe a few thousand more are in local authority administered landlords’ accreditation schemes of one sort or another. Even if the 25,000 with my book are different to the 30,000 in the landlords associations, that’s still a pretty tiny bite out of the 1.3 million landlords now operating in the UK.

So why does this matter at all?

Being a Landlord is a More Complex Business Today

Well, the trouble is that the business of being a landlord is very much more complex today than it was back in 1996 when buy to let mortgages were born.

Back then the business of being in business as a landlord was much simpler than it is today.

In 1996 there was, for example, no requirement to register deposits in a tenancy deposit scheme and hence less incentive to do a thorough inventory.

There was no need for an energy performance certificate, disability rules were simpler, there were fewer rules on HMOs, there was no such thing as licensing schemes and there was a different and simpler set of health and safety rules.

There were also a much smaller number of people on Housing Benefit / Local Housing Allowance – a particularly hard and challenging sector for landlords to get to grips with.

And yet, despite the complexity of buying to let having moved on, the buy to let mortgage today is still a simple “take it or leave it deal”, with most mortgage companies making no attempt whatsoever to help landlords understand what they need to do or what they need to know.

This may reflect an assumption that landlords will somehow “find out what they need to know” from letting agents or even from mortgage brokers and that they will “muddle through.” But, as we have explained, this is a misplaced hope.

Gurus

As a direct result of this information vacuum the buy to let arena has been inhabited by a host of “get rich quick in property” gurus peddling new and dangerous ways for novices to get into property with “little money down.”

It’s possible that many mortgage lenders directly lost money as a result of some of the past activities of some of the supposed gurus who, all too often, encouraged landlord-investors to over-extend themselves using techniques like “next day remortgage” loans taken out in conjunction with bridging loans.

Mortgage companies failed to fully appreciate what was going on and in many cases ended up “fire selling” properties that had been bought by landlords using esoteric techniques and hoping to “get rich quick” but often lacking any idea about how to actually manage a let property.

Lack of Information

The paucity of information has reduced and continues to reduce a private landlord’s chances of being successful in buy to let. And unsuccessful landlords who are losing money are a higher risk to the mortgage companies because they are more likely to default on their mortgage, costing the lender money (as not all of the losses can be recovered from the borrower.)

Even the admin systems operated by mortgage lenders for buy to let seem out of date. (Buy to let mortgage statements from two of my current lenders run to end December, not to the end of the tax year – which, of course, is the relevant date for all landlords having to complete tax returns!)

The Penny Drops

On 26 March 2010 the Treasury published Mortgage regulation: summary of responses announcing that it would reconsider changes to the form of regulation proposed to protect consumers in the buy-to-let sector. The paper said “The Government will examine how to ensure the impact of regulation on the buy-to-let market is proportionate, particularly for individual professional landlords. It will also consider how best to protect consumers from the range of possible causes of detriment that may result from buy-to-let including, if appropriate, the consequences of poor investment decisions as well as unaffordable borrowing.”

Subsequently, the coalition government indicated that if industry did more to provide information for landlords it may not feel the need to introduce regulation of buy-to-let mortgages.

In response the Council of Mortgage lenders has now held discussions with the National Landlords Association (NLA) and others about how the industry can provide more information to help landlords.

The penny has finally dropped, it seems, but at LettingFocus we wonder, why the Council of Mortgage Lenders did not seize the initiative earlier.

How LettingFocus is Helping Mortgage Companies

We are pleased to say we are now working with a few more forward looking mortgage companies to raise their game in respect of what they provide landlords – the knowledge they impart to landlords, the way they control client and property risk, their admin and their customer service.

It makes sense for them because better informed landlords are far less likely to make a mess of their business and default on their mortgage loans. For many other lenders, however, the penny has still not dropped.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

Services to Businesses and the Public Sector

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

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

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

To read blog posts on related posts, use the tags and categories at the bottom of each post (after the list of links), or over to the top right, you can click on “Categories” and use the pull down menu to read all the posts on a specific topic.

If you want to reply:

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

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

Discounted Products for Landlords: Landlords Resources

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 plus a host of other things that make me grumpy or happy, please see our TWITTER PAGE: Twitter

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

Tags: buy to let, buy to let loans, Buy to Let Mortgage Regulation, Buy to Let Mortgages, mortgage lenders
Posted in Buy to Let Mortgage Regulation, Buy to Let Mortgage Strategy, Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, FSA and Mortgages, Same And Next Day Remortgages, Uncategorized | Comments Off

The Future for Buy to Let Loans and Mortgages

Monday, January 10th, 2011

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

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

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 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)).

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

Tags: Buy to Let Mortgages, FSA Review of Mortgages, Mortgage arrangement fees, Mortgage fees, mortgage lenders
Posted in Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, FSA and Mortgages | 2 Comments »

2011 and the Outlook for the Housing Market, for Landlords and for the Buy to Let Sector

Monday, December 27th, 2010

In the last year the private rented sector continued to be in the news.

At LettingFocus.com we are not surprised and landords and suppliers to the private rented sector should not be surprised either.

A key reason is of course Housing Benefit, (or Local Housing Allowance (LHA) as it is known when private landlords are involved), and it is the large and growing cost of this benefit that’s the cause of all the trouble and it’s this that the coalition government has vowed to tame.

A range of treatments are being applied to douse the fire of the Housing Benefit dragon – from applying absolute maximum caps to housing benefits, to cutting the local payment rate to the 30th percentile of local rents to cutting it by 10% for those who have been on Job Seekers Allowance longer than 12 months.

All these measures come on stream at different times in the next 2 years though the first measure (cutting to the 30th percentile) will bite for new LHA claims from April.

Policy Fiddles and Sticking Plasters

Later on, from 2013, the government wants to break the link between the rate of LHA paid and local rents and instead make increases in LHA linked to the rate of inflation. At LettingFocus we think this particular idea will be hard to “make stick” but this is still a long way off and far away enough in time to be quietly dumped as policy.

Just in the last few weeks, the government has come up with a new idea – to allow local authorities the discretion to go back to paying LHA direct to landlords in return for a lower level of rent “if the direct payment to the landlords secures the tenancy for the claimant.” Now that’s an interesting idea and represents the latest in a long line of small concessions from the government on the Housing Benefit issue.

It makes some sense for the taxpayer, though landlords won’t like the idea of getting a lower level of rent.

As an independent observer of all this I also note with some amusement how the government has, at great cost, also widened and fiddled with the definition of homelessness in order to deal with the consequences of cutting Housing Benefit rates.

For example, lots of money will still be available to councils at the old median rates of Housing Benefit to set up long lease schemes with landlords (and so far the Daily Mail and the like who whinged so much about the cost of Housing Benefit haven’t noticed!)

Big Impact

The changes to Housing Benefit will have big implications for the whole private rented sector, including for private landlords whose tenant clients are not on any type of benefit.

Landlords in the more expensive London boroughs who are currently letting to tenants on LHA at rates above the new maximum caps will see the biggest negative impact as it will be them who will be most affected by the new maximum caps and this will have a knock on impact on local rents at the lower end of the market in the more expensive London boroughs. However, tenants and landlords in all parts of the UK will be affected by all the other measures to a greater or lesser degree.

One interesting consequence of the changes – and which we were the first to predict – is that cheaper areas in London could actually see more demand from tenants migrating from more expensive areas hit hardest by the new caps. It’s hard to be sure how great this impact will be but any increase in demand in the currently cheaper London boroughs will increase rents in these areas.

Also, the government’s move to set new social rents closer to market levels will tend to make more former social tenants think harder about the private rented sector as a viable housing option. This will help stoke the overall level of demand for private rented accommodation going forward.

The implications of all these changes to Housing Benefit are great and we are working hard in a consultancy capacity to help local authorities and housing associations plan for these changes.

Rents are Booming

Meanwhile, over the last year, private sector rents are booming in most parts of the UK.

To some extent rising rents represent something of a long overdue “catch-up” because rents have grown much more slowly than house prices since house prices started their long (and occasionally stuttering) march upwards back in 1996.

Most commentators think a big factor in recent strong tenant demand must be the difficulties experienced by would-be home buyers in getting a mortgage – leading them to rent instead.

We don’t find this argument terribly convincing because mortgages at 90% loan to value are readily available for first time buyers who have good credit records. We think the more likely explanation is that would-be buyers are just choosing to rent because renting gives them more flexibility and is much less risky than being saddled with a mortgage in a time of uncertain job prospects.

Mortgage Finance is Easing

And what of finance for private landlords?

Since Lloyds Banking Group got cold feet, the arrival of some new entrants into the buy to let mortgage market has meant access to credit has got a little easier. But the effect is very slight and compared to the “Golden Years of Easy Credit” from 2003-2008, today’s buy to let mortgages still come at high margins over base rate and high fees. Mortgage rates for loans over 70% LTV come with especially high margins and fees.

Mortgage applications are no longer waved through either – landlords seeking buy to let mortgages can expect lenders to pore over new mortgage applications and ask about everything, stopping just short of enquiring about a borrower’s inside leg measurement.

But at least the base rate itself is low though. And the low base rate is the reason why long term private landlord players are in a very good place because the majority of landlords who took out mortgages before the summer of 2008 still enjoy buy to let mortgages at between just 0.5% and 1.75% over base rate. Much lower than any new mortgage deal on offer today!

Add rising rents to this low cost money and it adds up to plenty of cash flow which means “old hand” landlords can rely mostly on cash for their next property foray. This gives them the edge over other buyers who are more dependent on mortgages to fund house purchases.

These equity rich buyers, with low historic mortgage rates may have “never had it so good” as the now sacked Tory politician correctly said.

And the Outlook….

What’s the outlook? Well, of course, it depends where in the country you are.

Overall, the UK economy remains very depressed and public and private sector job cuts are biting. Plus the Euro is in a terrible mess (though German exporters continue to benefit hugely from the resulting low Euro, thus making the death of the Euro a very unlikely outcome.)

Unsurprisingly, given the economic backdrop, UK house prices have slipped down over the last 12 months though many areas continue to defy the gloom. In particular, London house prices continue to hold up in the more “prime areas”, though even here the picture is very mixed.

The key for private landlords is as simple as it has always been. First, you must “stress test” your borrowings – which means if you are thinking of taking out a mortgage loan, ask how easily you could meet mortgage payments if interest rates rise. Could you increase rents to compensate? How would you cope with a void period when the property is empty?

If you have done this and still feel confident, then take the leap but make sure to buy in the right area where the economy is turning up and where housing demand, and especially tenant demand, will grow in the future. And above all, carefully pick your tenants only after thorough reference checks have been carried out.

Suppliers to the Private Rented Sector are Getting Smarter

Private landlords can also enjoy the fact that more suppliers -from mortgage lenders to insurers to local government – are getting smarter at selling products and services to the sector.

At LettingFocus we advise many organisations, both public and private – to help them improve their strategy, marketing, training and operations in our sector. There is still a long way for many suppliers to travel but as they get better at what they do, private landlords will continue to benefit, providing they are prepared to shop around a bit.

There will be no blog next week. We’ll be back and blogging around 10th January.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector expertise and Information for Landlords.

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 I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors in the PRSI and insurers – helping them improve their landlord facing or buy to let product strategies, marketing and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am 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 on 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

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 or click on the categories and use the pull down menu over to the top right to find all the posts on a specific topic.

If you want to comment, click on “No Comments” at the bottom of this specific post. (Spammers please note: We delete all spam.)

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

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

TO READ CLIENT TESTIMONIALS – click here: Testimonials

To get in touch or to JOIN our Free NEWSLETTER containing regular news for landlords and those selling to the private rented sector and for 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 all our emails.

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

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

TWITTER PAGE: Twitter

Tags: Buy to Let Outlook, house price forecasts, house price predictions, Housing Market Outlook
Posted in Buy to Let Mortgages, Buy to Let Not Dead, House Prices, Housing Benefit, Housing Benefit Row, Local Housing Allowance, Private Sector Leasing Schemes, Rising Rents | Comments Off

Local Housing Allowance Concessions Likely and Innovative Thinking Sought from Lenders

Tuesday, November 30th, 2010

I hope you are not too bored by our coverage of the Housing Benefit story.

If you are an organisation or public body and are providing / selling services or products to the private rented sector, you should still be riveted because it has big implications for the whole market.

Even if you are a landlord who never lets to tenants on Housing Benefit, the changes that are coming will have a significant impact on all rent, except for in the very upper end of the private rented sector. So, we think it is worth covering.

Anyway, the Government continues to tinker with what has been proposed. Here is the latest:

Concessions on Housing Benefit / LHA Changes Expected

It looks likely that the Government will make further concessions in its cuts to Housing Benefit by delaying cuts for existing private sector claimants.

The caps to the amount of Local Housing Allowance (LHA) existing claimants can receive look like being delayed until “anniversaries of review” starting from January 2012.

However, from April 2011, Housing Benefit will still be capped for new claimants (The caps depend on property size and range from £400 a week for 4 bed properties down to £250 a week for 1 bed properties.)

We expect to see some other concessions too, including possibly concessions for jobseeker’s allowance claimants who have a disability.

Coming soon is the report by the Department for Work and Pensions internal social security advisory committee which is due to be published at the same time as the statutory instruments are laid down. I expect the report may criticise the cuts. Should be interesting reading.

Once all the concessions are counted up and once the cost of the increased use of temporary accommodation has been added in (see 2 blogs ago for more on this) we wonder if the out-turn for savings from these big changes will be much to shout about.

Still, this is politics and it will keep some in the press happy that something has at least been done to try to tame the soaring cost of the Housing Benefit beast!

Local Government Grapples With the Changes

Local government officials that we meet in the course of our consulting work are doing an honourable job of grappling with the Housing Benefit changes. And it’s not an easy job.

To get new ideas they must constantly look over at what other boroughs do and how they go about accessing the private rented sector supply.

But with other boroughs also chasing the private rented sector supply too, they actually have to compete to some extent – so not the ideal environment for idea sharing!

Also, watching what others do can sometimes lessen the potential for innovative thinking. (With our understanding of the sector, how it’s structured and what landlords want, we do our best to help people break out of their paradigms.)

But there is some very clever thinking around Government too.

Picture This

Picture this – we have mortgage lenders repossessing properties. Lots of them!

The properties sit empty for ages while an estate agent tries half heartedly to sell them. (Fees for this work are low, so it isn’t top of an agent’s “To Do” or “To Sell” list at their Monday briefings.)

If they don’t sell via an agent, the property eventually goes to auction where it is often sold at below market value. And the properties sit empty all this time.

Meanwhile, the local councils are desperate for property.

Now, we know that mortgage lenders can act as “receivers of rent” so it would be nice if some kind of deal could be done where councils could use the repossessed property for temporary accommodation with the lender getting a gilt edged rental income.

Local and national government are predictably keen, but we would need some real innovative thinking from the mortgage lenders for this to happen.

I’ve said before that many lenders seem to lack the innovation of those involved in housing within Government so I’m not holding my breath that anything could happen here. I expect repossessed houses will continue to sit empty for ages and be sold off cheap.

School Closures – How You Know When You are Old

You know you are old when you have lived long enough to recall your school days and how they never shut schools then just because of a teensy bit of snow.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors in build to let and insurers – helping them with their landlord facing or buy to let product strategies, marketing and services.

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

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.

Just click on the categories and use the pull down menu over to the top right to find all the posts on a specific topic. (If you should want to find relevant posts from before 30 April 2010 (on our old system) you can also click on LettingFocus’s Old Blog - Categories, then search from the list for a topic that interests you.)

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

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Tags: Buy to Let Mortgages, Housing Benefit, LHA, Local Housing Allowance, mortgage lenders, Receiver of Rent, Repossessed Property
Posted in Buy to Let Mortgages, Estate Agents and Mortgages, Housing Benefit, Local Housing Allowance, Private Leasing Schemes, Private Renting Schemes, Private Sector Leasing Schemes | Comments Off

Getting a Buy to Let Mortgage A Useful Guide to Getting the Best Deals and Rates

Tuesday, October 26th, 2010

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

In last weeks’ blog I said I thought it would be worthwhile publishing a brief guide to buy to let mortgages.

So here is our short guide for investor landlords wishing to buy and let property. (Please note this is not a guide for people who might be classed as “property traders” (whose business is more about buying and selling property in a short time period) or “developers” (whose business is mainly about substantial renovations for developments with a view to sell rather than let out) though I hope they will find things of use to them here.)

In a nutshell, a buy to let mortgage is a mortgage which is used to purchase residential property that you will NOT live in.

The key difference between a buy to let mortgage and a standard residential one is that with a buy to let one, the lender is usually more concerned with the value of the property and how much it can be rented out for than how much you are earning (though if you DO happen to have good earnings from a day job that will mean you should have a better choice of buy to let mortgages to choose from.)

Rental Income Potential is A Key Factor

Lenders will want to know that the rental income you can achieve is more than the annual mortgage payment and the ratio that’s usually used is the rental must be equal to or more than 25% more than the interest payments on the mortgage (though some lenders want 30% more.)

Each lender has different criteria and some ask that you do have an income of at least £25,000 per annum – which can be on a self employed or employed basis. Self employed people may have to show at least one year of good accounts – i.e. more than £25,000 profit, and the business must be something other than property.

The minimum deposit you need to put down in most cases is 25%, though there are a few mortgages where only 20% deposit is required. However these are much more difficult to obtain, the interest rates are higher and you must be an experienced landlord and have a high credit rating to qualify.

It is advisable to get an agreement in principle in place from a lender before starting your property search so you will know that you are credit-worthy and the lender will be happy to lend to you. Also it means estate agents and property finders know that if they can find the right property you can move forward with the purchase quickly.

Credit Checking and Credit Scoring

Most lenders will use credit checking and credit scoring when you submit an application.

However, there are a couple of lenders now that don’t credit score, but they only offer mortgages to “experienced investors” at the moment. (An experienced landlord is usually defined as someone who has owned and let out at least one property for 3 years.)

Where a lender does not use credit scoring this could help those individuals that may have had some credit problems in the past – however the lender will want reasons for any problems, CCJs, loan defaults etc and information as to whether they have been settled. Interest rates will be higher.

You can buy a buy to let property when you do not own one already but you are very limited by the number of lenders available to you as lenders are now extremely wary when it comes to “inexperienced property investors.” Generally, it is always advisable to be a property owner or purchase with a property owner to get the best deals.

Most lenders like landlords with experience though Lloyds Banking Group (BM Solutions and Cheltenham & Gloucester brands) has rather bizarrely recently decided that they will no longer lend to landlords who have more than 3 mortgages with them across the group.

Things You Can Do To Help Yourself

Here are some things that can help you:

Get your credit report
Obtain an Agreement in Principle (an AIP) when you start your search
Look at the overall mortgage not just the headline rate.
If you use an independent broker, use one who is not tied to a specific lender and make sure they are regulated by the FSA.
When getting purchase funds together ensure you include all costs including deposit, stamp duty, legal fees, mortgage costs, furnishings etc
If using bridging finance to purchase property, always make sure you have a defined exit strategy (Bridging is not advised for inexperienced investors however it can be a good tool for an experienced investor who may need to purchase a property quickly, by exit strategy I am referring to a way to remove the bridging, this could be a buy to let mortgage or paying off the loan through sale of another property, but it is a good idea to know which route you are going to use as it can be an expensive form of finance and is only for a short term basis 6-12 months)
It can be more difficult to buy with a buy to let mortgage if you do not currently own a property and also if you do not have a job.
If looking at new build property always check lender’s conditions on loan to value and property type

Post credit crunch, getting finance has got much harder as lenders have tightened their criteria. But if you plan ahead and get your finances straight before you start applying you stand a better chance of success.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

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

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

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

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

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This blog is updated once a week, usually on a Monday or Tuesday.

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

Tags: buy to let, Buy to Let Mortgages, Estate Agents and Mortgages
Posted in Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages | 2 Comments »

Mortgage Fraud and Buy to Let

Monday, October 18th, 2010

I’m sad to say that at some recent events I have been to, quite a few punters came to me with pretty strong evidence that some property investment “advisors” are still encouraging people to carry out mortgage frauds as a way of buying property with little or no money down (NMD) and / or as part of a “buying below market value” or BMV strategy in buy to let investment.

The advisors often claim that they have uncovered a new clever way around the rules. I’m not so sure.

Let’s be clear here: If you do not declare the actual net property purchase price to the lender, you have carried out a mortgage fraud. There are no ifs and buts about this.

And no matter what a “friendly” solicitor says, if you know the price you sign to say you are paying on the mortgage application form is not the same net price that you have paid (taking account of all side agreements and options etc), then you have committed mortgage fraud. It’s that simple.

Lenders are now very sharp at detecting fraud as we can see from the many solicitors and brokers who have been struck off in recent months. And yet there are many more bent mortgage brokers and solicitors still at large who are still operating the dodgy deals and will do all they can to ensure the trail does not end with them.

They will ensure that it is the hapless investor, not them and not the property advisor who is exposed to the force of the law when the brown stuff hits the proverbial spinning thing on the ceiling.

A Plea for Common Sense

At a recent event two people came up to me to lament that they had paid thousands of pounds to property sourcing and property finding companies that had later gone bankrupt, taking all their money with them.

I really despair at this and have to ask when will people ever learn? I see some firms are now asking sums in the range from ten to sixty thousand pounds to either teach people all there is to know about property or to find them a few properties.

“Great” I say, “And what happens should that firm go bankrupt?”

Sadly, it seems that often people are too blinded by the concept of fast riches and “financial freedom” to worry over much about such an event occurring.

For me parting with that kind of cash would be too much of a risk. But then again, I know that 85 to 90% of all that someone needs to know about residential property investment in letting property is in my book:

Buy the Book at Amazon

Other good sources are Property Investor News and sites like LandlordZone and our low cost seminars:

Next Property Investment Seminar and Networking Event

Recent Mortgage Moves – The Latest and Best Buy to Let Mortgages

In next weeks’ blog we will publish a beginner and intermediate guide to buy to let mortgages. But this week I will have a quick look at what rates are available.

Most lenders prefer landlords with experience, though as noted in a previous blog, Lloyds Banking Group (BM Solutions and Cheltenham & Gloucester brands) have rather bizarrely recently decided that they will no longer lend to landlords who have more than 3 mortgages with them across the group.

This odd move has been countered recently by lender Paragon which has recently re-entered the market. For landlords with a number of properties, that’s good news because Paragon has always majored on portfolio landlords (though their rates have not always been the best.)

And two new buy-to-let lenders Aldermore and Precise Mortgages have also helped fill up the space vacated by the Black Horse. The Mortgage Works (part of Nationwide) are still offering buy to let mortgages at 80% loan to value but credit score is very important to them – so make sure both your Experian and Equifax credit reports are accurate.

Bank of China is offering good rates on Buy to Let up to 75% with fixed fees. Northern Rock offering buy to lets up to 70% loan to value with no income verification and refinances within 6 months. HMO lending up to 75% and loans for portfolios are available with a variety of lenders but will always cost more and you must be an experienced landlord.

There are currently 292 buy to let products available on the market, compared to the 266 products that were available in July 2010. The average variable rate has been reduced from 4.84% to 4.76% and the average fixed rate on the market is now about 5.55%, so whilst the margins over base rate are still very high on an historical basis, maybe these are small signs that things are finally looking rosier in the world of buy to let finance.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

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

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

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

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

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

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. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

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

Tags: Buy to Let Mortgages, Financial Freedom, Mortage fraud and buy to let, Mortgage Fraud
Posted in BMV, Below Market Value Property, Buy to Let Mortgage Fraud, Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, Get Rich in Property | 1 Comment »

Evaluating Property Investments a Black Hole and Some Good News on Mortgages

Monday, October 4th, 2010

NEXT SEMINAR AND NETWORKING EVENT: Next Property Investment Seminar and Networking Event

When evaluating property investments, too many landlords fail to take account of the “opportunity costs” of their own money sunk into any project. Indeed I meet a lot of people in my consultancy who have hired me to assess an investment or set of investments but have forgotten to account for the opportunity costs.

I explain this in “Successful Property Letting”, but maybe my explanation there needs to be made even plainer. Buy the Book at Amazon

It’s simple really. If you have to put up say, £50,000 as a deposit for a property to let (with a bank putting up the rest) and you have transaction costs of say £6,000, then you have put up £56,000 in total.

That £56,000 could have been sitting in the bank earning say 4% (and 4% could be about right because, as a buy to let investor you are presumably putting away money for at least 5 years and 4% is attainable right now on 5 year fixed term bonds.)

4% of £56,000 is £2,240 – that amount is the opportunity cost. It’s basically like saying, “What could I have earned by doing nothing?” and it should be added to the cost side of any investment, thus reducing the potential profit for each year of the investment going forward.

Lost Money on Failed Property Transactions – The Black Hole

Very few landlords running residential property investment businesses and letting to tenants (as opposed to property traders and developers) realise that if a property purchase falls through, they cannot claims the costs of that abortive expenditure against rental property income or as a deduction before capital gains tax is levied either.

Yes, the money is lost. It’s a black hole which HMRC is aware of and it seems very unfair, but hey, that’s the situation.

Property transactions that fall through are especially common for landlords buying property at auctions for example where you can be more easily outbid. HMRC and my tax advisor are both clear on this– if this happens you cannot claim abortive costs like the cost of the survey valuation if you are a property investing landlord.

Good News on Buy to Let Mortgages

Landlords seeking mortgage finance and still smarting from Lloyds Banking Group’s odd decision to stop lending new money to landlords who have more than 3 properties across the group (which includes Lloyds, C&G, Halifax and BM Solutions brands) will be pleased to see that Paragon have started lending again. Some good news at last!

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

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

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: One to One Advice

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

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

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. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

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

Tags: Buy to Let Mortgages, Tax and Buy to Let
Posted in Buy to Let Mortgages, Buy to Let and Landlord Tips, Buying Property at Auction, Capital Gains Tax, Tax on Let Property | Comments Off

Mortgages and Estate Agents Plus Lloyds Banking Group’s Strange New Buy to Let Lending Policy

Tuesday, September 21st, 2010

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Lloyds Banking Group has just announced it will no longer be offering new buy to let mortgage loans to landlords who have more than three properties or who have more than £2m worth of loans. This move will also hit buy-to-let investors that are remortgaging their current properties.

Apparently, nine out of 10 of buy-to-let borrowers with Lloyds (which includes BM Solutions) have less than three properties with the group. A spokesman told me, “We’ve never been a provider for borrowers with massive portfolios,” she said.

Well, with policies like this, Lloyds clearly has no desire to help their successful landlords grow bigger either.

So that now leaves just one big player in the buy-to-let market – The Mortgage Works, which is part of Nationwide Building Society. OK, I know there are a few other small players but most of the others are all pretty well hamstrung when it comes to new lending by the freeze in the money markets. And as The Mortgage Works probably won’t want all the new business, landlords can only expect buy to let mortgage rates (which are already high relative to standard residential rates) to go up even more.

(As an aside, we have said before at this blog that the high rates on buy to let loans compared to standard residential can be explained better by lack of competition than by worse arrears rates.)

Just the other week I wrote on this blog about some landlord friends of ours who have a few million in equity in their properties, 10 years experience as landlords, an overall loan to value ratio overall of about 50% and an annual profit of around £65K from their property business. They were turned down for a loan on a new property because it seems that Woolwich (part of Barclays) no longer likes to lend to full time landlords.

And now Lloyds Banking Group would clearly now be out of the picture too for these people.

Baffling

I find this all pretty baffling. I simply cannot understand why the UK banks would rather lend to the more novice and inexperienced landlord than to professional landlords with a long proven track record of success, strong incomes and high equity. I haven’t seen the stats, but I do know from people I meet that the more experienced bigger landlords are always better risks and would exhibit lower arrears rates.

I fully accept that there is some danger to lenders if a big landlord has a high loan to value across his portfolio. But the banks can easily weed out applicants like these.

What’s probably happened is that someone high up at these banks has issued an edict saying they don’t want to be exposed to any individual for more than a certain amount of money – and that has been passed on and down the line. They also probably just lump buy to let in with other more risky lending like sub prime and self cert mortgages.

But in doing this they did not stop to think that the fact they can control the amount of exposure they have to any one individual’s specific property actually makes their risk fully controllable with respect to the specific asset on which the loan sits.

Bank of China and the Post Office are two new lenders who aren’t stuck for funds to lend though both have a low profile in buy to let despite some decent rates (though LTV is limited with BOC).

This move by Lloyds will surely have these competitors excited. I hope so because otherwise the options are limited for borrowers.

Rogue Estate Agents and Mortgage Mischief

Estate agents love to try to force you to use their “independent” mortgage adviser. Indeed, all too often they refuse to put an offer forward until you have had your finances “reviewed” by their mortgage adviser, or in some cases they may even say that if there are two offers on a property they will only push the offer that has arranged via a mortgage thats been taken out through them.

Let’s be clear. Any estate agent that is a member of a professional body like the National Association of Estate Agents is duty bound to put all offers forward to the vendor, and must confirm the offer in writing to both buyer and seller. And it does not matter whether you have spoken to their mortgage adviser or not.

Of course, being vetted by the agent’s mortgage adviser can have advantages for you. For a start the agent can confirm to the vendor that you have spoken to their adviser, and that you are a credible buyer, regardless of whether you arranged your mortgage through them. This puts your offer in a very positive light, which is of obvious benefit to you.

But if you have your mortgage agreed in principle elsewhere, you should tell the agent and be prepared to show them proof of this, together with any deposit.

But never feel forced into arranging your mortgage through the agent just to secure the property. Most agents are straight but there are some who will not play fair. These rogues tot up the lost commission from the mortgage and that from the sale, compare it to the other applicant who did take out a mortgage with them and “forget” to put forward your offer. If you think that has happened to you then you must formally complain to the estate agent’s governing body.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

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

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

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

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

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

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. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

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

Tags: Buy to Let Mortgages, Estate Agents and Mortgages
Posted in Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, Buy to Let and Landlord Tips, Estate Agents and Mortgages, Lloyds Banking Group Buy to Let | 4 Comments »

Consent to Let and Buy to Let Mortgages

Monday, September 6th, 2010

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Readers of this blog will know that I have consistently questioned why the rates on buy to let mortgage mortgages are so much higher than standard residential ones – a differential that does not seem justified by a worse arrears experience.

Well, I am very pleased to see that the Post Office Financial Services have done some sums and realised that there must be a veritable pot of gold in buy to let mortgage lending and have come out with a more competitive rate and mortgage fee to shake up what must be a profitable market that is currently dominated by a very small number of players.

I rather like the Post Offices 5 year fixed rate of 5.89%, not so much for that rate itself (which is OK all the same) but mainly for the “follow on” rate of 3.49% (or 2.99% above current base rate.) And the fee of £1495 is low too.

Sure, this is not great shakes compared to what was available up until the end of 2007, but it is a well overdue move and may even force the big players to lower their rates. Who knows it may even coax Barclays-Woolwich and the likes of Santander out of their buy to let mortgage hibernation and set off yet more competition?

Not Available Through Mortgage Brokers

The Post Office product is not available through mortgage brokers, so I don’t suppose the usual brokers that many personal finance journalists always seem to go to for a comment are going to give it a big high five, but this product is worth checking out.

(Digression - If you are one of those journalists who are not yet aware of our work, do feel free to ask an independent, non-broker-linked-private rented-sector chap like me for thoughts on new mortgage rates. Now we have comparison sites like Moneyfacts, it’s not rocket science to do this and independent landlord experts like me and Tom Entwistle at LandlordZone are always happy to comment.)

Consent to Let – Don’t Cheat

Today, most people on standard residential mortgages who decide, for whatever reason, they want to let their property will nearly always face a higher mortgage rate to do so.

Getting your mortgage lenders consent to do this is sometimes called “Consent to Let” and whilst it used to often be Okayed for free, the higher mortgage rates on buy to let means that these days, nearly all mortgage companies will now either charge a higher mortgage rate premium on top or make you move to a specific buy to let mortgage product (which will always be at a higher rate.)

One consequence of this is that the temptation is now more enhanced for people to try to cheat by not telling their mortgage lender they have let out the property.

They do this by having post redirected (as post going to a different address from the property with the mortgage on it may lead a mortgage company to ask questions) and of course, getting landlords insurance with someone other than the mortgage lender.

The trouble is, if you get found out, it puts you in breach of your mortgage conditions, is technically fraud and you may have to face whatever penalty the mortgage lender tries to impose on you – which can be draconian. I would advise against doing this.

Dumb Lending

At a National Landlords Association event a few days ago, where I saw the excellent tax expert Carl Bayley speak, I got talking to a couple whose kids go to my son’s school and who have a very large and successful buy to let business generating about £80,000 of profit and who have millions of pounds of equity in their properties.

Just as they were about to exchange on their next buy to let, someone at the bank who was lending them the money suddenly noticed that their chunky income was all from property letting and investment income and told them that, as they did not have £30,000 of employment income, they would not lend to them after all.

No amount of upward referral of the matter would help and the purchase was lost – the bank in question even agreeing to refund their legal fees and valuation fees rather than honour the deal.

This is dumb “Computer Says No” lending at its worst and I hope is a rare aberration from this particular lender.

If you have had a bad experience at the hands of a bank or building society who should really know better, write and tell us. (I’m afraid we will never print the name of any bank in question but I’m always interested in your stories and if LettingFocus are in discussion with the lender as part of our corporate consulting work, we may be able to raise the matter – with your consent, of course.)

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

Services to Businesses and the Public Sector

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

AT OUR WEBSITE LETTINGFOCUS.COM:

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

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

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

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

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

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. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

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

Tags: Consent to Let
Posted in Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, Consent to Let | 5 Comments »

LettingFocus

Archive for the ‘Buy to Let Mortgages’ Category

Mortgage Fraud Buy to Let Lending and Property Clubs

Landlords Still Wait for Advice from Buy to Let Mortgage Companies

The Future for Buy to Let Loans and Mortgages

2011 and the Outlook for the Housing Market, for Landlords and for the Buy to Let Sector

Local Housing Allowance Concessions Likely and Innovative Thinking Sought from Lenders

Getting a Buy to Let Mortgage A Useful Guide to Getting the Best Deals and Rates

Mortgage Fraud and Buy to Let

Evaluating Property Investments a Black Hole and Some Good News on Mortgages

Mortgages and Estate Agents Plus Lloyds Banking Group’s Strange New Buy to Let Lending Policy

Lloyds Banking Group has just announced it will no longer be offering new buy to let mortgage loans to landlords who have more than three properties or who have more than £2m worth of loans. This move will also hit buy-to-let investors that are remortgaging their current properties.

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