There is a belief among some people that being a landlord is just a case of buying a house, sitting back and collecting the rent. The sad thing is, many people do enter the buy to let market believing it an easy way to earn money. But they have found, to their cost, this is far from the truth.
Being a landlord holds many rules and restrictions which have to be adhered to, and there are more restrictions on the way.
The Bank of England has been granted new powers that will allow them to regulate how buy to let mortgages are obtained, and these powers could have a profound effect on those landlords looking for new loans or looking to re-mortgage.
Here are some of the ways these powers will affect landlords:
Restrictions on short term loans
At present, landlords usually take out low interest, cheap two-year loans. It is these low interest deals that are causing concern among regulators.
They fear a rise in interest rates will leave many landlords unable to cope. To counter this, regulators are insisting lenders introduce more stringent checks on people who are looking to take out short-term buy to let loans.
More and more lenders are encouraging landlords to take out more expensive five-year loans.
How will this affect repayments?
£150,000 two-year loans at the best rate of 1.59% will cost £199 per month.
A comparison five-year loan at the best rate of 2. 49% fixed will cost £311 per month. This is an increase of £122 per month or £1,344 per year.
This deal would cost a landlord an extra £6,720 over a five-year loan period.
There is a small silver lining on taking a five-year loan. Landlords will enjoy greater security on payments and will not have to pay any fees by remortgaging every two
However, if a property is not generating enough income to qualify for a two or three-year fixed rate deal, the prospective borrower will have to either put down a large deposit or bite the bullet and take up a five-year loan.
More rules on the way
There are more restrictions in the pipeline for landlords with four or more properties with buy to let mortgages on them. From September 30th 2017, landlords will have to produce income and details of the mortgage on each property every time they wish to re-finance one of them or buy an additional property.
And the good news?
There is a glimmer of hope in that some lenders apply less stringent stress tests than others. Lenders such as Royal Bank of Scotland, Barclays and HSBC apply very tough tests to all borrowers. But others, including The Mortgage Works, Coventry Building Society and the buy to let branch of Nationwide tend to be more lenient for people seeking five-year loans.
Peter Williams, Executive Director at the Intermediary Mortgage Lenders Association, believes that many landlords will stay in the market, and that residential property is still an attractive investment as rents tend to rise with inflation.
Help is at Hand
With so many changes on the way in 2017, and with the possibility of more in the future, prospective landlords should seek the help of an experienced and respected letting agent to help them understand any other changes the government may introduce at a later date. At Denhans we have the knowledge and experience to help landlords understand how any changes will affect their investment. Why not contact us and see how we can help you?