Longer Term Tenancies and Getting the Right Buy to Let Mortgage
In this LettingFocus blog post, we discuss our research into the potential for buy to let mortgage lenders to allow borrowers to offer longer term assured shorthold tenancies. We also look at the questions borrowers should ask themselves to ensure they get the mortgage that’s right for them.
Currently, at LettingFocus we are doing research into the potential for buy to let mortgage lenders to allow their landlord borrowers to offer longer term assured shorthold tenancies.
This is becoming quite an issue in the media and government as many interested (and often uninformed) parties regularly criticise landlords for not offering longer term tenancies than the current standard six month or 12 month ones.
The answer is simple. Landlords who have mortgages on their properties are usually restricted by their lenders’ mortgage terms and conditions which say landlords cannot offer ASTs which have longer than a 12 month fixed term. (Some landlords have other reasons why they don’t want to offer longer term tenancy agreements too, but the “lender restriction” is a key problem.)
A lot of the work we are doing this week involves looking at the issues that concern lenders and seeing if these can be adequately addressed either within the current legal framework or by changing the mortgage terms and conditions, whilst still complying with the relevant Acts of Parliament in this area.
We may not be able to share the results of our research work beyond our corporate clients but we think that landlords, government and the media would be happy to know that this issue is now being addressed.
Getting a Mortgage – Questions You Should Ask
Speaking of mortgages, I’m in the process of re-mortgaging on some of my existing buy to lets as well as at the same time, raising more money for a residential purchase.
I have mentioned many times at the blog, my extreme irritation that the media hardly ever quotes “the follow on rates” when they discuss mortgage rates.
For example, it’s all very well knowing that the rate is 0.5% above Bank of England (BOE) base rate for 2 years, but, unless you are planning to pay it off at the end of 2 years, it is kind of important to also know that at the end of the 2 year term the rate will be 6% over base or whatever the lender’s current Standard Variable Rate (SVR) is!
Deciding which mortgage is best for you will come down to a lot of issues:
1. How long you want the loan for and when you want to or expect to be able to pay it off, either in part or in full.
2. How important fixing a rate is to you and if so, how long to fix it for.
3. If you plan to remortgage in the future, what you think the outlook for Bank of England Base Rate is over the whole term of the loan (and after any initial “discounted” period). Also, whether you think the lender’s mortgage margin over the BOE base rate will be less or more in X number of years’ time than it is now. And whether you think mortgage application fees will be lower or higher then.
4. What the lenders’ stated “loan to value (LTV) ratio” is and whether opting for a lower LTV ratio could reduce the mortgage rate charged.
Other Issues to Consider
Also important are:
1. What is the “starter” and what is the “follow on” interest rate. How are those rates calculated – are they pegged to the BOE or is it whatever the lender feels like setting it at?
2. What is the set up mortgage application fee? What fees are charged for valuations (they can vary a lot)? Are there any exit penalties or early redemption penalties and, if so, how much are they? Are there any fees for making lump sum repayments and how much are these?
3. When must the mortgage be redeemed? (On residential in particular, some lenders will not allow you to have a mortgage after the normal retirement age.)
I currently take the view that remortgaging will still be expensive in 2 to 5 years time. I expect remortgage application fees on buy to let will still be high then. For this reason, and because I plan to buy and hold properties for a long time, I currently opt for the best long term lifetime Bank of England base rate tracker.
Mortgage Broker or Direct Only?
Borrowers should also be aware that lenders are increasingly offering some products that are only available direct and not available via mortgage brokers (though this is less common on buy to let mortgage products.) So look online too.
However brokers are very knowledgeable. They know the ins-and-outs of each lenders criteria / underwriting approaches and this can save you a lot of legwork.
And don’t forget brokers receive commission from lenders on most products they sell, so you may not need to pay them at all.
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