For the first time in more than 10 years, the Bank of England has raised interest rates.

What does this mean for buy-to-let? Can landlords mitigate the interest rate hike? Is now the time to remortgage?

Portico London estate agents ask finance experts, Capricorn Financial, for their advice, plus their thoughts on the best buy-to-let mortgage rates currently on the market.

Can Landlords Mitigate The Interest Rate Hike?

Landlords are already seeing their profits decrease as a result of recent tax changes and changing legislation, and the recent interest rate increase will simply add on more costs.

Mark Lawrinson, Portico’s Regional Director, says landlords can mitigate the hit by cutting their interest costs:

“Buy-to-let mortgage interest rates have dropped dramatically in recent years, so deals currently on the market will be a lot better than products arranged a few years ago. It’s sensible therefore to shop around and remortgage. That being said, landlords will now have to consider the new PRA rules.

With large increases in property prices in London over the last five years, another tip is to get your rental property re-valued. This will make your lender recalculate your LTV, and a lower LTV means a better interest rate and a larger choice of lenders.”

What Are The Best Buy-to-let Mortgage Deals Currently On The Market?

Capricorn have recommended the following buy-to-let rates – but have stated that they do not take into account a landlords exposure to a lender, number of properties owned, personal income, or the rental income of the subject property. The lenders names have been omitted as there are multiple lenders in each category, and it really does depend on the client’s situation, number of properties and the rental income of the property. There are over 30 lenders in this arena, so please get in touch if you’d like to find out more.

They have assumed a purchase price of £500,000 across the board.

75% Loan-to-value (LTV)

The best buy at 75% loan to value has a 2 year fix rate of 1.89% and comes with no lender, arrangement fee or booking fee. It is important to consider that there are lower initial rates available e.g. 1.32% but this comes with a higher arrangement fee that makes the total cost for comparison over 2 years higher than the 2 year fixed rate of 1.89%. Customers should consider all fees over the course of their intended initial period or term before deciding on the appropriate mortgage product.

The best buy at 75% loan to value for a 5 year fix has an initial rate of 2.49% and comes with no lender arrangement fee, booking fee or survey fee, making it potentially attractive for those customers not wishing to pay upfront lender fees.

60% Loan-to-value (LTV)

The best buy at 60% loan to value and a 2 year fix rate of 1.49% and comes with an arrangement fee of £999 and £310 survey fee. The lender also offers a cashback feature of £250.

The best buy at 60% loan to value and a 5 year fix rate of 2.09% and comes with an arrangement fee of £1995 and a survey fee of £275. The lender also offers a cashback feature of £500.

What Percentage Deposit Do I Need For A Buy To Let Mortgage?

There are lenders who will accept a 15% deposit, however, because of the new rental stress tests this is not feasible in London.

The majority of lenders require 25% deposit, again this is restricted by the rental stress test. Realistically in London, based purely on rental income you should aim for between 30% and 40% deposit depending on the area.

A few lenders allow you to take your income into account to cover the shortfall, therefore speak to an adviser before looking at BTL properties beyond 60% LTV.

Portico recommend you take legal and tax advice before making any financial decisions. If you’re interested in any of these mortgage rates, or speaking to an expert mortgage broker, give them a call today on 0207 099 4000.

The post Can Landlords Mitigate The Interest Rate Hike ? first appeared on Property Insider.

Portico comments on the new buy-to-let mortgage lending rules hitting landlords this month:

Portico’s Regional Director, Mark Lawrinson, comments on the upcoming buy-to-let mortgage changes:

“Under the new rules, if you want to make an application for a buy-to-let-mortgage on a new rental property, the lender will have to look at your entire property portfolio when they decide what mortgage deal they can offer on a single property.

For example, if you have six properties and four are generating enough rental income to cover mortgage payments and then some, but the other two are not, your new mortgage application may not be approved by some lenders.

As of 30th September, lenders will also require a full breakdown of rental properties, a business plan, and cash flow projection to support a new application.

As a result of the new buy-to-let lending changes, we may see a surge of rental stock come back on the market for sale as landlords look to offload their weakest performing properties in order to get further lending on more potentially profitable properties.

The new rules could also have a knock-on effect on rental prices, as landlords look to cover any shortfalls or carry out works to a property to both increase the capital value and the rent, in turn improving the yield and the return.”

When asked by Portico, seasoned landlord and London NLA representative, Richard Blanco said:

“Landlords who want to remortgage or capital raise before being assessed through the new criteria will need to get their skates on. They may be too late for some lenders who applied the new rules from Friday 1^st September.

Many lenders will unfairly assess landlords’ existing mortgages through a 145% x 5.5% prism even though they originally got their mortgages on looser criteria years ago. This could create mortgage prisoners: borrowers who are unable to switch lenders. This is a reminder that if you do remortgage to another lender, always choose one that has a good track record in switching customers to competitive follow on rates once the initial product has expired.

Landlords are gradually waking up to the fact that they are having to borrow at a much lower loan to value, so they may not get further advances because rental coverage has to be much higher. If their regular lender has decided not to do business with ‘portfolio landlords’, they may need to take their business elsewhere.

Portico London estate agents asked mortgage experts, Capricorn financial, who the new rules will affect: 

“A few lenders are likely to withdraw from this arena as a result of the new rules. Santander have already indicated they will not lend to portfolio landlords for purchases or additional borrowing, while others have improved their offering through brokers – NatWest, for example, have gone from a maximum of four properties to 10.”

The new lending changes come on top of the tighter stress tests which came into place in January this year.

Mark Lawrinson adds: “As our Interactive Yield Map shows, rental yields in London are extremely low, so tougher affordability checks mean that a lot of properties simply won’t cut it as viable buy-to-let investments. We have certainly seen less professional landlords adding to their portfolio this year, but there is still money to be made in buy-to-let if you invest smartly.”

The post New Buy To Let Lending Rules Hitting Landlords This Month first appeared on Property Insider.

Will 2017 be the year that interest rates eventually rise?

Portico estate agents recently attended the Landlord Investor Show, where The Sunday Times’ Economics Editor, David Smith, gave his expert view on when he expects interest rates to rise and by how much. Here’s what he had to say…

What are your thoughts on the long-term future for interest rates? How long before we get back to somewhere near normal and what needs to happen to get us there?

It’s a very timely question. We sometimes forget how unusual a period we’re in for interest rates. It is 10 years since we had the last increase in interest rates, so we’ve been on these ultra-low rates for a very long time.

The Bank of England reduced the bank rate to 0.5% in March 2009 and until the financial crisis of 2008/9, the bank rate had never been below 2%. Of course we saw the reduction to 0.25% in August following the Referendum, and within that we’ve also seen a narrowing of margins, so mortgage rates have come down quite a lot, even in a period where official interest rates stayed.

Rising inflation is proving to be powerful

It’s a timely question because just last Thursday the Bank of England was the closest it has come to an interest rate rise for quite a long time. Three members of the eight strong committee voted for an increase in interest rates.

And they did so because they fear that the rising inflation that we’re seeing is proving to be a little powerful. The Bank expected inflation to peak below 3% and now I think it’ll go above 3%, so it might be a bit more enduring than they expected even a month or so ago.

The three officials who voted for an increase in interest rates were all external members of the embassy, in other words, they’re not the insiders like Mark Carney and his deputies, all of whom voted to keep interest rates on hold.

Emergency rate cover may be reversed

I think it is quite likely that in the coming months at least one thing will happen: the emergency rate cover we had after the Referendum will be reversed. It was responding to a danger that in the end wasn’t there. The economy didn’t fall off a cliff after the Referendum – in fact it held up very well, so I think the argument for reversing emergency rate cover is quite a strong one.

When will interest rates rise?

Look at the way the markets have interpreted the Bank’s vote; until recently, the expectation in the markets was that you wouldn’t see any increase in interest rates until beyond 2020, now the expectation is that it will be brought forward and we will probably see an interest rate rise next year – and it could come sooner than that. I envisage a situation where the cut in August last year will be reversed, maybe not as soon as August but possibly by November this year.

What happens beyond that?

Well, the guidance we’ve had from the bank is that interest rate rises will be both gradual and limited. In other words they will be done, as the Federal Reserve is doing in America, in baby steps, in a very gradual fashion.

Where we’ll end up in terms of official interest rates, and of course you have to translate that into the interest rates that you actually pay, will be a new norm for bank rate of around 2%. I expect we won’t get there for 2 or 3 years, but that is the kind of guidance that we’ve had from the Bank of England. This compares with an average of 5% before the financial crisis, and it compares with an average of 12% we had in the 1980s. Despite it still being a low figure, it’s still quite an adjustment to move from 0.25% to 2%, even gradually, so it will mark quite a significant change for many people.

Double figure interest rates

Once you get to 2%, I don’t see that we’re suddenly going to move back to the levels that scared us so much in the past. For the foreseeable future, I don’t think we’re going to see double figure interest rates, I think this low, single figure will be the norm, and I expect to see it throughout the 2020s.

Something is starting to stir on interest rates that wasn’t necessarily expected and we will see a gradual move over the next few years up to 2%.

What does this mean for those thinking of buying property?

The rate increase will be slow and gradual over the next few years, when it eventually begins, so I don’t think anybody needs to react today. Plus with the mortgage market still very competitive, the knock on effect to rates available to purchasers will not be hard felt, at least not initially.

That said, even a 0.25% increase can add a significant cost to a mortgage. For most people, the cost of living is already tight, so if you want to get a foot on the property ladder or make that significant step up, now is a great time to lock in a good rate.

I already have a property. Should I fix my mortgage rate now?

Yes, absolutely. I have had friends and colleagues who have stuck with a tracker mortgage under the belief that rates couldn’t increase in the short to medium term. But this just isn’t true. Rates absolutely can rise, and they’re likely to, so if you have a great rate that is affordable to you and works with your circumstances, why not lock it in and have that peace of mind?

Alternatively, if your current mortgage rate is coming to an end or you think you could get a better deal, consider remortgaging. But before you do, make sure you get your property re-valued. This will make your lender recalculate your loan to value, and a lower loan to value means a better interest rate and a larger choice of lenders.

Will this affect landlords or investors?

In the short term no. All lenders are now stress testing buy-to-let mortgages at 5.5%, so an increase is already factored into the lending and affordability. Most investors will also have planned or accounted for some sort of rise in their budgets.

Nonetheless, as the rates gradually get closer to 2%, landlords will be looking to offset this increase and one of the obvious ways for this is via a rent increase.

This is more market driven in terms of available housing and demand from tenants first and foremost and this is what will lead rental prices over the coming years.

If you want to get an up to date valuation for remortgaging purposes, or if you’re just curious as to the current value of your house, click here for an instant property valuation.

Guest post provided by Portico.

The post When Will Interest Rates Rise? first appeared on Property Insider.