Back in March 2016, a surge in property purchases was recorded, as landlords rushed to complete sales ahead of the 3% Stamp Duty surcharge on additional homes. This rush to beat the change caused an 87% jump in housing transactions, according to the Land Registry.
Many landlords are likely to have secured themselves a two-year fixed rate mortgage at this time, so, in March this year, there will be an unusually high number of investors reaching the end of their deals.
Greg May, the Director of Financial Services at Romans estate agent, explains: “Landlords who bought before the Stamp Duty increase in 2016 are not only at risk of overpaying by being automatically transferred to the lender’s Standard Variable Rate (SVR) product, but may also find securing a new deal increasingly difficult due to the changes in mortgage lending criteria.”
Those who do not act when their fixed rate deal comes to an end may run the risk of being automatically placed onto the lender’s SVR, which could result in higher monthly repayments. The newly introduced stress testing on buy-to-let mortgages is designed to ensure that, should interest rates rise, the landlord can still cover the cost of the mortgage.
However, even when they do act to secure a new deal, some landlords may find that their options are limited, as mortgage lending criteria for buy-to-let properties has become much tighter.
This may prevent some landlords who aren’t aware of how to get themselves in the right financial position to remortgage from securing a new product.
May continues: “Landlords who borrowed at the higher end of the loan-to-value threshold are likely to feel the changes to lending criteria the most.
“Those who are unable to remortgage may be able to transfer onto a different product with their current lender, but this does mean that their options are extremely limited.”
He adds: “Ideally, landlords want to be able to pick between a number of different products from a variety of lenders, in order to find the right deal for their circumstance.”
Typically, a mortgage application process takes around six to eight weeks to complete, so many landlords will need to act now in order to find the right deal for their circumstances.
Landlords are faced with a number of options, from increasing their rental payments to working with a specialist mortgage advisor to create a business plan and demonstrate that they remain able to repay their mortgage, despite the change in criteria, or to find a different product.