Posts with tag: mortgages

Lenders Now Enforcing New Rules on Portfolio Landlords

Published On: October 2, 2017 at 8:56 am

Tags: mortgages,portfolio landlords,PRA changes,remortgaging

Lenders Now Enforcing New Rules on Portfolio Landlords

Lenders are now enforcing new rules on portfolio landlords under the Prudential Regulation Authority’s (PRA) changes to underwriting standards.

The Bank of England’s (BoE) PRA has imposed stricter lending criteria for portfolio landlords – defined as those with four or more buy-to-let properties.

As of 30^th September 2017, lenders have put new rules in place when lending to portfolio landlords investing in new properties or remortgaging their existing investments.

We have created a free, handy guide to help you understand how the new rules might affect you: /landlords-guide-pra-portfolio-underwriting-changes/

The changes mark phase two of the PRA’s new underwriting standards for buy-to-let, in an attempt to curb lending to those investing in rental properties. The first phase, which was introduced earlier this year, involved stricter affordability tests for all landlords.

Now, the PRA is requiring changes to the way that lenders underwrite mortgage applications for portfolio landlords, in a bid to improve the level of mortgage arrears rates associated with large property portfolios.

If you are looking to take out a new mortgage or remortgage your existing properties, you will be required to pass specialist affordability checks under the new rules.

Although the PRA has not outlined a specific requirement for lenders, it has advised that they should take the following into account: a landlord’s experience in the buy-to-let sector; their whole property portfolio; their rental income; any outstanding mortgages; and their assets and liabilities. Your historic and future expected cashflow will also be assessed.

When the time comes to apply for a new buy-to-let mortgage or to remortgage a property, you should be prepared to present the following: an up-to-date property portfolio spreadsheet; a business plan; cashflow forecasts; your last three months’ bank statements; submitted tax returns; and potentially your income and expenditure statements for your portfolio.

For this reason, we recommend getting all of your paperwork in order now and speaking to a financial adviser if you believe you’ll be affected by the new rules.

First Time Buyers Driving the Housing Market in Huge Shift

Published On: September 27, 2017 at 10:11 am

Author: Em Morley

Categories: Property News

Tags: first time buyer,first time buyers,housing market,mortgages

Although housing market activity has been growing modestly since the start of the year, first time buyers are now driving the market in a huge shift, according to the latest market commentary from UK Finance, for September 2017.

Overall housing market activity resembles what we saw just over two years ago, in 2015, the organisation reports.

The rise of the first time buyer

However, the mix of activity has shifted, with first time buyers driving the market, rather than cash and buy-to-let. The level of property transactions seen of late, of just over 100,000 a month since the turn of the year, is not expected to change much in the short-term, as the leading indicator of activity – house purchase approvals – has now returned to where it was at the beginning of the year.

First Time Buyers Driving the Housing Market in Huge Shift

The Bank of England’s (BoE) Agents’ survey suggests that part of the strength in first time buyer activity is down to demand for new build homes using the Help to Buy equity loan scheme. There are also several other Government schemes aimed predominantly at first time buyers, such as the Help to Buy ISA, which are no doubt helping to boost their numbers.

Benefitting much less from Government schemes, home movers have largely been treading water over the last few years. The shortage of homes on the market for sale has also meant that some would-be movers are struggling to find suitable homes, and so do not put their properties up for sale.

In the buy-to-let sector, Government interventions, coupled with regulation, have led to a flat market, with around 6,000 property purchases a month since April 2016, after the Stamp Duty surcharge on additional homes came into force.

Regional shift

As well as a change in the type of activity, there is some evidence to show that the regional mix has also shifted, away from London, the South East and East Anglia, towards the north of England, Wales and Scotland.

The common characteristic in this divergence is that regions that have typically been less affordable have shown signs of weaker activity, while regions that are relatively more affordable have been more buoyant. The latest Royal Institution of Chartered Surveyors (RICS) and BoE surveys also reflected this shift.

At a regional level, the difference in affordability (as measured by the typical income multiple for homeowners) between the most and least affordable regions has diverged since 2013, with the gap doubling over this period.

This trend may reverse, and we may see some rebalancing, if the shift in activity is sustained. It’s also the case that sentiment and price expectations in regions where affordability is stretched have weakened or are negative.

Remortgage activity

On the remortgage side, strong competition and low funding costs have meant a growing number of homeowners are taking advantage of the near record low mortgage rates. UK Finance expects more homeowners to refinance in the coming months, as prospects of the first interest rate rise in over ten years gain new impetus.

Buy-to-let remortgage activity has been growing until very recently, but the number of loans made over the past 12 months has been lower compared with the previous 12 months. Tax changes that come into effect in April this year are likely to restrict the ability or willingness of landlords to re-leverage their portfolios.

Lending in August

Despite the shift in housing market activity, by buyer type and region, total mortgage lending has been stable, estimated to be £24.2 billion in August. Adjusting for seasonal factors, this figure would be £21.4 billion, which is in the same ballpark as monthly lending over the course of 2017.

While we won’t have the breakdown of August lending for some time yet, the drivers of lending are likely to be first time buyers and homeowners remortgaging, as has been the case for July. The picture in July is also similar to that of April, May and June, so a continuation doesn’t seem too unreasonable.

Looking ahead, UK Finance expects more of the same, though it anticipates that the pace of growth will slow somewhat, dampened by a potentially more challenging economic outlook.

Portfolio landlords

From 30^th September 2017, portfolio landlords – those with four or more buy-to-let properties – will be subject to more specialist underwriting standards when applying for a new buy-to-let mortgage. This includes looking at the landlord’s experience in the buy-to-let sector, the cashflow associated with all of their existing properties, and inspection of their business plans.

UK Finance does not expect this to cause a surge in activity before the change, followed by a lull in buy-to-let purchases.

Some Landlords may be Banned from Lenders under new Rules

Published On: September 27, 2017 at 9:31 am

Author: Em Morley

Categories: Finance News

Tags: mortgages,portfolio landlords,PRA changes,underwriting changes

Some landlords may be banned from certain lenders under new mortgage lending criteria from the Prudential Regulation Authority (PRA).

From 30^th September 2017, landlords with four or more mortgaged buy-to-let properties will be subject to stricter lending criteria when remortgaging or taking out a mortgage on a new property.

Some Landlords may be Banned from Lenders under new Rules

The new rules mean that lenders will have to take a landlord’s total income versus borrowing across their whole property portfolio into account. This change is designed to ensure that borrowing on any new properties does not have a negative impact on the landlord’s ability to repay loans on other properties within their portfolio.

Currently, lenders assess a landlord’s application based on the rental income and value of the property they are lending against. The new regulations will mean that, not only is the property being lent against considered, but also the rental income, geographical spread, value and any loans across all properties in a landlord’s portfolio.

The new rules will only affect a very small proportion of landlords, as many either own their properties outright or have fewer than four properties. Data from UK Finance shows that just 11% of the UK’s 1.9m landlords own four or more properties, while an even smaller amount use mortgages to finance their investments.

Only those with poor cash flow or a high number of properties in one geographical location should be concerned. This highlights the importance of obtaining regular and up-to-date rental valuations, to ensure that your properties are marketed at the correct prices. And, for those with multiple properties in one location, seeking expert financial advice before the changes come into force is advised.

The stricter criteria mean a lot more work for lenders, which could result in them refusing to offer mortgages to landlords with large portfolios.

The main impact of these changes on landlords will be the time it takes for a mortgage application to go through. With all of the additional considerations for lenders, it’s recommended that you allow a minimum of three months for the application to be processed.

However, the new rules are likely to mean that landlords will have a more limited choice of lenders and products to choose from when it comes to purchasing a new property or remortgaging an existing one.

It’s also advisable that you check that your current lender will be continuing to offer their services to portfolio landlords and, if required, whether you can refinance with them in the future.

The changes also highlight the importance of keeping up-to-date, detailed records for all of your properties. This way, when the time comes to remortgage, you will have all of the information needed for your application to hand. This should include: your current mortgage value; rental income; outgoings; and rental profits, along with tax returns for all of the properties you own.

If you have not done so in the past six months, now is definitely the time to review your portfolio and any associated mortgages, to ensure that you are on the best possible rate, making the maximum amount of profit and, most importantly, won’t run into any difficulties in financing or growing your portfolio in the future.

Is the Housing Market Starting to Rebalance?

Published On: September 26, 2017 at 9:40 am

Author: Em Morley

Categories: Property News

Tags: buy-to-let landlords,first time buyers,housing market,mortgages

The latest high street banking data and mortgage market commentary from UK Finance suggest that the housing market may be starting to rebalance…

UK Finance estimates that overall gross mortgage lending in August stood at £24.2 billion, of which high street banks lent £15.1 billion. Accounting for seasonal factors, this figure is in the same ballpark as monthly lending over the course of 2017.

Is the Housing Market Starting to Rebalance?

House purchase approvals by high street banks reached 41,807 in August, which is stronger than the monthly average of 41,133 over the last six months and 11% higher than in the same month last year, when the market was subdued following the EU referendum result.

The Senior Economist at UK Finance, Mohammad Jamei, is pleased to see the housing market starting to rebalance: “Housing market activity is in Goldilocks’ territory, growing only modestly since the start of the year, though the mix of activity has shifted towards first time buyers, away from buy-to-let and cash. There is also some rebalancing across regions, as activity picks up in the north of England, Wales and Scotland, away from London, the South East and East Anglia.”

John Eastgate, the Sales and Marketing Director of OneSavings Bank, also comments on the new figures: “Mortgage lending remains on a fairly even keel, if somewhat in the doldrums. Lack of confidence can be seen across the market, with the possible exception of first time buyers, who represent a Help to Buy-driven growth zone. The potential for a rate increase sooner rather than later might well stimulate some remortgage activity but, overall, the market remains relatively directionless.

“Meanwhile, the buy-to-let market faces up to yet more change. We have seen demand from many portfolio landlords seeking finance ahead of the PRA’s [Prudential Regulation Authority] next wave of changes to underwriting standards, although awareness is far from universal. It will take some time for the dust to settle and, in the meantime, the outlook for tenants is one of higher rents.”

The Marketing Director of Foundation Home Loans, Jeff Knight, continues: “Record low mortgage rates continue to sustain market activity but, given even the most dovish members of the Bank of England’s Monetary Policy Committee are now adding to the calls for an interest rate rise, this picture could very quickly change. A wait-and-see approach is best avoided for first time buyers and existing owners considering remortgaging.

“With the PRA changes for portfolio landlords fast approaching, we are likely to see a spike in activity from those hoping to finalise deals ahead of the underwriting changes coming in. While it will take some getting used to, the changes will go a long way to professionalise the sector and help to expel rogue landlords, so, in the long-term, it’s important that decent landlords are properly engaged and supported to ensure the rental sector remains a positive option for those not yet ready to buy.”

John Goodall, the CEO and Co-Founder of buy-to-let specialist Landbay, concludes: “Mortgage lending levels rose steadily in August, with borrowers continuing to reap the rewards of record low mortgage rates and loan-to-value deals. The Bank of England’s rate-setting committee has fuelled speculation that the first rate rise in almost a decade is now likely, and soon, so those looking to buy a property or remortgage their current property will now be moving fast to lock in a mortgage rate before the change.

“In the buy-to-let market specifically, October’s PRA changes are fast approaching, so some of this uplift is likely down to landlords making changes to their portfolios before the stricter lending and reporting criteria kick in. The changes are a good thing for the ongoing sustainability of the private rental sector, but many landlords are unaware of what the changes mean for them, so we could see a dip in Q4 [fourth quarter] lending levels while the industry adjusts to the new rules.”

Mortgage Process Proves too much for One in Ten First Time Buyers

Published On: September 26, 2017 at 9:19 am

Author: Em Morley

Categories: Finance News

Tags: buying a home,first time buyers,mortgages

The mortgage process is proving too much for almost one in ten (8%) first time buyers, who admitted that they were reduced to tears while attempting to secure their first mortgage, according to research from online mortgage broker Trussle.

Mortgage Process Proves too much for One in Ten First Time Buyers

That’s the equivalent of 27,000 first time buyers crying as a result of the mortgage process last year.

In the study of 2,000 homeowners, it was also revealed that roughly a quarter (23%) were forced to take time off work to make arrangements for their first mortgage. Applied to last year’s 338,000 first time buyers, this equates to 77,740 people.

Many find the traditional mortgage process to be opaque and time-consuming, with one in four (23%) borrowers reporting that they found the experience to be stressful, while 5% felt compelled to complain to their lender or broker about the service they received.

The negative experience so often associated with securing a mortgage is also leading to inertia among current borrowers. One in ten (9%) respondents – the equivalent of a million people – said that they’ve been discouraged from switching mortgage by their experience of being a first time buyer, while, for 13%, it’s actually discouraged them from moving home.

This switching inertia is costing UK homeowners billions of pounds every year, Trussle has found. There are roughly two million borrowers in the UK on a Standard Variable Rate (SVR) mortgage when they don’t need to be, and most will have slipped onto an SVR because they failed to switch when their initial term ended. A borrower on an SVR will almost always pay a higher rate of interest than they would on a competitive deal.

Trussle has calculated that the average UK borrower on an SVR pays £4,900 more in annual interest than they would on the lowest rate deal on the market – equating to £9.8 billion in excessive interest being paid by inert mortgage borrowers on SVRs each year.

The CEO and Founder of Trussle, Ishaan Malhi, says: “Buying a home is one of the biggest milestones in someone’s life and should be remembered with fondness, but, for so many, it’s an ordeal they’d rather forget. A lot of it comes down to the stress and inconvenience of the mortgage application process. It’s therefore understandable that so many people are reluctant to think about their mortgage when the time comes to switch, but the sad result is that homeowners are collectively losing billions of pounds a year.

“The good news is that things are improving, if in pockets. We’re already seeing dramatic progress in the mortgage customer experience, with the use of technology speeding up and simplifying the whole process. This in turn should help to address some of the causes of the inertia costing homeowners so much money.”

We’re reminding all portfolio landlords that the Prudential Regulation Authority’s new underwriting rules will soon be introduced. Get to grips with what they mean for you with our handy guide: https://www.justlandlords.co.uk/news/portfolio-landlord-underwriting-changes/

New Report Compares First Time Buyers in the UK to Ireland

Published On: September 25, 2017 at 10:28 am

Author: Em Morley

Categories: Property News

Tags: first time buyers,Ireland,mortgages,property market

First time buyers in both the UK and Ireland are suffering similar effects of the financial crisis but, in the past decade, they have also undergone vastly different experiences, due to migration and other demographic changes affecting their respective countries, and severity of the housing market correction.

These are the findings of a joint research report published by UK Finance and the Banking and Payments Federation Ireland (BPFI). The report, UK and Irish Housing Markets: A First-Time Buyer Perspective, argues that the financial crisis produced similar, and well-documented, adverse effects on housing and mortgage markets.

New Report Compares First Time Buyers in the UK to Ireland

Each country has also experienced continuing tensions between Government schemes seeking to promote activity in the housing market and regulatory intervention intended to ensure that the market remains sustainable.

The research provides the first detailed comparison of the UK and Irish mortgage markets, and uses detailed loan-level data from UK Finance and the BPFI to profile first time buyer borrowers in the two markets.

A common challenge in both countries is a continuing shortage of housing supply. But, despite this, first time buyer activity has been growing since 2011 in the UK and since 2013 in Ireland.

First time buyers remain vital to the health of the wider housing market. As well as continuing to sustain homeownership, they provide liquidity in the market, and enable existing homeowners to move and create housing chains.

Recent developments affecting first time buyers in the UK and Ireland include:

Demographic factors that have implications for the scale and nature of housing demand, with older people accounting for a growing share of the population, and major life events prompting household formation – particularly marriage and childbirth – occurring later in life.
The failure of housing supply to keep pace with demand, with housebuilding and sales activity still recovering from the collapse at the end of the last decade.
Changing lender risk appetites and practices after 2009, and tighter mortgage regulation to reduce demand and limit lenders’ exposure to losses from 2014.
A lack of liquidity in the housing market resulting from some existing homeowners being unable or unwilling to move.
Government housing schemes to support supply, although these schemes have more explicitly targeted first time buyers in Ireland than in the UK.

Key findings from the loan data include:

The age distribution of first time buyers in the UK remained broadly unchanged between 2004-16, while, in Ireland, there has been a large fall in the number of young first time buyers.
First time buyers in the UK have extended average mortgage terms since the financial crisis but, in Ireland, terms have tightened.
High loan-to-value (LTV) borrowing – 95% and above – continues to be largely absent from both markets.
There is evidence of loans bunching just below macro-prudential limits on loan-to-income (LTI) in both countries – 90% LTV and 3.5 LTI in Ireland, and 4.5 LTI in the UK – with lending above the limits imposed by regulation falling.
Higher LTI borrowing was focused in the capital cities of London and Dublin, where, of course, house prices are higher.

Another challenge is that the shortage of housing supply in both the UK and Ireland means that prospective first time buyers are also potentially competing for properties with movers who have acquired housing equity and private landlords, but creating a favourable environment for first time buyers must also mean addressing the needs of other purchasers and households in general.

Are you surprised by the differences between the UK and Ireland?