10/5/2015
Move fast before new rules restrict buytolet | The Sunday Times
Move fast before new rules restrict buytolet EU mortgage guidelines next March will make it more difficult for aspiring landlords to enter the market Anna Mikhailova Published: 4 October 2015
LIKE many
Photograph: Alamy
homeowners, Ian Gray often thought about buying a second property and letting it to make extra money. But now Gray, a mortgage broker, is rushing to act on what was once a vague plan — before new rules make it difficult for aspiring landlords to apply for a buytolet (BTL) mortgage. For most people, the words “EU mortgage credit directive” do not mean much. Yet Gray warns “the very foundation of the UK’s BTL mortgage market could change” when the new rules come in next March. “It may be the last chance for people like me to get into buytolet,” he said. http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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The new rules are expected to hit those with their own mortgage but no buytolet property. Those without significant debt, such as a mortgage, and existing landlords will not be as badly affected. Gray added: “Today, it is quite easy for homeowners looking at their first buytolet to get into the market. It might become much more difficult if I wait.” Banks and building societies have already started changing their lending criteria for residential mortgages ahead of the directive (see panel below) but bigger changes are expected for buytolet loans. The Treasury estimates the EU rules will affect 11% of such mortgages. Last week RBS, Santander and Lloyds Banking Group, which also owns Halifax, told The Sunday Times they will be reviewing their processes for BTL mortgages ahead of the directive deadline. Gray, 42, a broker at largemortgageloans.com, bought his first property, a onebedroom flat in Maida Vale, west London, in 2007. Now he and his partner, Luca De Luise, 42, a freelance illustrator, are househunting to beat the forthcoming changes — along with many of his clients. Buytolet is booming. Figures from the Council of Mortgage Lenders (CML) show 11,800 buytolet mortgages were taken out in July, up 27% on the same month last year. Borrowers can enjoy cheap mortgages with as little as 2% interest. However, prospective landlords need to take into account a crackdown in tax subsidies to be introduced over the next few years. We look at how mortgage restrictions and squeezed tax breaks will change the buytolet market.
What are the new rules? The EU’s mortgage credit directive comes into force on March 21. As a result, lenders will have to distinguish between professional and “consumer” landlords. Smallscale and “accidental” landlords — for example, those who could not sell their home and have resorted to letting it — are expected to be affected. These consumer buytolet borrowers will have to pass similar affordability tests to those obtaining a regular residential mortgage. At the moment it is generally easier to obtain a BTL loan — they are not subject to the Mortgage Market Review, the strict rules for homeowner loans introduced in April 2014 by the Financial Conduct Authority.
What could change? It is unclear how British lenders will interpret the EU rules. Gray said: “The implication of the wording in the directive is that British underwriting of buytolet mortgages is too risky.” At present, buytolet lenders primarily look at the expected rental income when assessing a mortgage. The borrower’s income and debt is largely ignored. Most lenders require the rental income to equal 125% of the mortgage repayments. So if a mortgage costs £1,000 a month a landlord must collect monthly rent of at least £1,250. Lenders also test affordability against a higher interest rate than the customer is signing up for — to ensure they will be able to cover the repayments if interest rates rise — and may apply a minimum income requirement, typically £25,000 a year. This is expected to change for firsttime and “accidental” landlords. Gray said: “I think new landlords will not be able to rely on the future rental income of their buytolet purchase, so it may be possible only for those with very high salaries or very low residential mortgages to get into the market for the first time.” He gives the example of someone on a £60,000 salary with an existing residential mortgage of £200,000 who wants to buy a £500,000 buytolet property with a monthly rental income of £1,800. They would be able to borrow £345,600 with most lenders today. http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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If the rules change, the total debt allowed across both properties for this kind of “consumer” landlord could be a
Hopefuls: Ian Gray and Luca De Luise
maximum £270,000. In our scenario, £200,000 of this would already be used up, leaving lenders to offer only £70,000 for the buytolet, Gray suggests. David Hollingworth of the mortgage broker London & Country said: “Examples of what may be classed as ‘consumer’ buytolet include situations where the property was previously a main residence or a property that has been inherited.”
Record mortgage choice If you are looking to get into buytolet, the good news is that landlords now have the widest choice of mortgage deals on record, according to figures last week from the specialist broker Mortgages for Business. "There are 953 buytolet products on offer, a 35% rise on the same period last year. NatWest has the cheapest twoyear fixedrate for those with 40% deposits, at 2.02%, according to financial analyst Moneyfacts. For those with 20% deposits, the Mortgage Trust has a 3.95% twoyear fix." But again, be quick as the number is expected to fall as the new rules come in. Andrew Montlake of the mortgage broker Coreco said: “Choice for the consumer will ultimately become more limited.”
Risks ahead In the summer budget, the chancellor announced a cut to the tax relief landlords can claim. Next April, the “wear and tear allowance”, by which landlords can deduct 10% of their rent from their taxable income, will be replaced by a system that gives tax relief only for replacing furnishings. Currently, individual landlords can deduct costs (including mortgage interest) from their pretax profits. Wealthier landlords receive tax relief at 40% and 45% — but this will be restricted to 20% for all landlords by April 2020. Nina Skero, economist at the Centre for Economics and Business Research, said: “The budget announcement will undoubtedly discourage some from making this kind of investment. http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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“On the other hand, rising property prices mean greater numbers of households will remain in the private rental market for longer, driving up rental demand and prices. Rising rents should offset some of the income loss associated with the changes to tax relief.” A spell abroad makes a mortgage at home tougher to get The EU rules will not just make life harder for landlords. Lenders are already clamping down on those looking to buy their own home while earning their income in a foreign currency. Anyone who escaped the rat race to an idyllic French farmhouse or who has been posted abroad for a few years will now find it harder to get a mortgage back in Britain. Last week Accord Mortgages, part of Yorkshire building society, became the latest lender to disregard income earned in a foreign currency on mortgage applications, in anticipation of the EU mortgage credit directive. The change came a week after Lloyds Banking Group said it would not recognise foreign income. The restriction applies also to people who transfer the money into a British bank account and change it into sterling. Aaron Strutt of the mortgage broker Trinity Financial said: “This will hit a range of borrowers, especially if they are working abroad and planning to buy a property in the UK. These often include bankers, teachers and engineers. “It is surprising how quickly the lenders have acted and pulled out of this market.” Earlier this year, Nationwide also stopped this type of lending. Lenders who will still take into account income paid in a foreign currency include Market Harborough building society and Santander, subject to the borrower meeting affordability criteria. anna.mikhailova@sundaytimes.co.uk
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Mr John
19 hours ago
The EU is coming up with every socialist idea to stop people making money. If the British public actually woke up, got a calculator out, they would find they are working two weeks out of every month for nothing, as all this money is being stolen by the state in a whole range of taxes. Even basic rate tax payers are having half their annual income stolen in taxes( vat, NI, income tax, council tax, car tax, fuel tax. booze tax, capital gains tax, death duties, airport tax, and so the lis goes on ). ..I am amazed how comatosed most people are, who seem quite willing, without any questions to work six months of the year for the State free of charge. If people switched off their mobiles, switched off the TV, stopped being distracted from the idiotic game of football, and woke up to what the socialist state is doing to them , there would be riots on the streets. http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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The Toy maker
Reply
17 hours ago
@Mr John Not Just the EU The UK Tories were and are at it as well Child benefit changes/reductions for middle or high earners Reduced pension tax credits on pension savings ( any one know of they did same for Public sector free pensions of course not . Reduced total pension contributions More or less abolished 50%council tax on second homes where you use less than half the services but now pay all of them. Higher Capital gains taxes was 18% went up to 25% I am sure there were more
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Alan Davis
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3 hours ago
@Mr John The EU socialist? Just thinking back to the Cyprus crisis did they not sanction the government to simply take a chunk of savings deposited in the bank? I believe they were considering the same for Greece recently. This is money that belongs to private individuals who had accumulated some substantial savings. But the EU thinks it is ok to just take a slice because the member country had made a bit of a mess handling their economy! Maybe time to look at the USA where government does respect private property. To call the EU "Socialist" is rather kind, Bill Sykes comes to mind. Recommend
The Toy maker
Reply
21 hours ago
What I think you can rely on is the The UK Housing market and UK insurers and Banks ought to be regulated by the UK government to suit UK issues that will necessarily always not be line with the slow to nil growth EC economy that is dying under weight of socialism and regulation and soon to experience inward mass migration on an epic scale never seen before that will drag them down further until the new arrivals learn the language and get educated enough to get work. If Brussels do not stop interfering in UK issues so much over the head of our elected Parliament the UK will lead the rush for the exit, soon followed by others. 1 http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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Reply 5/9
10/5/2015
Move fast before new rules restrict buytolet | The Sunday Times
Mike Isaacs
23 hours ago
The whole article seems to be based on Mr Gray's assessment of what the EU may do. I think there may be better commentators I don't think I'd rely on his views. Recommend
The Toy maker
Reply
1 day ago
Every day we get a couple or three more reasons to leave the EU and very few to stay Today I read about eh PRU may leave due to EU Rules and then EU is making rules about buy to let rules in UK and Cameron is in a showdown with EU Judges and this is just one day anyone seen a reason to stay in today's newa I am finding it hard not to join the lets get our team With the huge immigration issue on us I can not see Cameron winning this vote I think we are heading out 1
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DENNIS RICHARDS
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1 day ago
Funny how a 'common market' can effect BTL mortgages . EUSSR anyone? Recommend
Andrew Daws
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1 day ago
I understand that the MMR was to stop the chaos of the sub prime loans, but why do the EU want to tighten the rules still further? Is it simple risk aversion? I suppose the end result will be that there are less buytolet properties, so it will depress the market to make it easier for people to buy their own homes? Recommend
Robert Holmes
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1 day ago
Are buy to let landlords the new slave owners? Owning the indentured labourers in industry and commerce who hand over most of their wages every week and live on pot noodles 2
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DENNIS RICHARDS
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1 day ago
@Robert Holmes I charge £525 per month for a two bedroom, two year old flat with inbuilt http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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appliances, recessed LED lights etc etc etc. If you think this makes my tenant a slave who then has to live on Pot Noodles then you are a fool . 2
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Robert Holmes
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20 hours ago
@DENNIS RICHARDS @Robert Holmes I admire your restraint Recommend
The Toy maker
Reply
1 day ago
@Robert Holmes That is Politics of envy stuff?. People who an not afford to buy need flats and houses with present insane over the top mortgage rules the young have no chance to get a mortgage and buy. So you are ANTI landlords? Who are in fact intensely regulated I know I have put half my pension into 2 flats . What is your proposal ? Easy to be ANTI things harder to have a solution as to who buys and lets flats to the 9 millions families that need them. 1
Robert Holmes
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Reply
20 hours ago
@The Toy maker @Robert Holmes AS with DR I sense guilt maybe? There is an increasingly desperate shortage of housing which is getting worse by the week, with that shortage unlikely to decline , what sense is it to invite people to buy up housing with or without a pension pot to finance it and prevent first timers ever getting on the bottom rung.WW2 analogy: what if the rich had been allowed to use their wealth to buy up most of the food and then the government had given tax relief to do so and even lent you money how would that have helped the worse off? Is your cash accelerating new build or mopping up existing supply. Back in the 60's mortgages were rationed and house inflation largely steady.I could have bought a little house in London even in the early 70s but now..When reserve ratios were relaxed around 1970 ,the financial sector started massive lending and, with a limited stock ,the housing market rocketed and rockets. So if you people held back ,took some of the pressure off demand and let the kids accumulate some saving to buy their first home ,what is wrong in that? PS never voted Labour Recommend
The Toy maker
Reply
18 hours ago
@Robert Holmes @The Toy maker That I worked my whatsits off for a generation to earn a pension and have bought 2 flats and earn a dividend and buys shares and earn a dividend Guilt ? not a Cintilla . That I chose flats as a way to improve my pension well that is my view of what the government is doing and has done to the http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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housing market they are allowing even creating a shortage. I have not made the rules that mean younger persons can not get large mortgages any more . My present and last 23 tenants do not even want to buy a house yet. Who would buy my single bed flat anyway? Single bed flats are transient places for young poeple and students until they get married etc. If all the buy to let landlords sold out? well that would trigger a massive housing crash is that your suggestion? millions left with mortgages above the house value? Should retired people who do not need their houses sell them off cheap to young people? and if they do not sell up and make room should they feel guilt? The high house prices has very little to do with available finance. It is about the idiotic NIMBY culture that stops enough houses being built and successive Government who dare not take them on. Also we have inanely slow and complex planning rules. I know as we have spent over 2 years trying to turn a small derelict office building into 3 flats for rent or sale. The latest planners questions are about bat habitats and possible loss of jobs ( no one has rented these offices for 8 years) and this is the fourth reapply after each one was turned down before for other reasons that we have ''corrected''. Yes as prices rise people will try even harder to build new flats despite the system. That is market forces. If the government did its job right, the market would be easier and lower. And yes I think I look after my tenants pretty well and respond when there is a problem asap. Recommend
Robert Holmes
Reply
18 hours ago
@The Toy maker @Robert Holmes You should be feeling better now. ps (Cintilla )Did you mean chinchilla or scintilla? I also suffer from "post haste" Recommend
The Toy maker
Reply
16 hours ago
@Robert Holmes @The Toy maker Like the reply. Prob deserved it. http://www.thesundaytimes.co.uk/sto/business/money/mortgage_and_property/article1614503.ece
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So how is your pension invested? do you have just one property then? Government pension perhaps? I am a floating voter but never voted Labour either. Recommend
Robert Holmes
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15 hours ago
@The Toy maker @Robert Holmes State pension and some savings left after helping kids with mortgage so we also "artificially " forced up prices !!They had little savings and we handed most of the cash over. Daughter and husband bought a house in London where they work , which is now ridiculously overvalued at over a million. Grandchildren no chance Recommend
The Toy maker
Reply
13 hours ago
@Robert Holmes @The Toy maker Yep also just helped my 2 kids with mortgage deposits 2 years ago but then my Dad helped me 40 year ago £7.5k then !! pre the wild inflation of the 80's Hope your savings are not invested in equities as that drives prices up and drives down yields for pension funds and is bad for pensioners. Far too much money in deposit accounts as well driving down interest rates !! should keep your money under the bed. ( sorry can not resist that one !!) Recommend
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Livefyre
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