Don't delay Buy To Let Remortgage


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including Mail on Sunday Property and City AM.

Well, the sky hasn’t fallen in on the buy-to-let market – at least not yet. That’s the best verdict I can come up with after another turbulent seven days for the economy. Here’s a run-down on the good and bad news – and a tip on how to get through these turbulent times.

First, the good news. Last week there was a surprise respite in the number of people going insolvent. It could have been a blip. But it still suggested that any impending repossession crisis in the owner-occupier and investor markets might get a similar downgrade. Then we got some better than expected figures from Nationwide showing that house prices picked up again in October. That suggested that our appetite for property hasn’t disappeared after all, even though plenty of other figures suggest that these kind of rises are now going to be the exception rather than the rule.

The bad news is more general – and more global. The darkest clouds are still rolling in from America where the sub-prime mortgage crisis is attracting more scalps and affecting even more of the country’s property market.

The boss of Citigroup, the world’s biggest bank, has resigned over the issue. Figures for average prices across the US show steep falls in many of the states popular with British fly-to-let investors.

Meanwhile rumours abound over which UK banks, if any, have followed in Northern Rock’s footsteps and borrowed some emergency fund from the Bank of England. Throw in a sky high oil and gold price and it’s easy to see why our economic commentators are getting so nervous.

More specifically, it’s easy to see why the papers are now so full of ‘buy-to-let timebomb’ stories saying we’re all doomed.

My advice for buy-to-let investors trying to weather all these storms is twofold. First, if you are in the middle of a medium to long term fix or discount mortgage deal that suits you then carry on regardless. Hopefully the uncertainties in the property market will mean plenty of prospective owner-occupiers will stay tenants for a little longer. So void periods should stay short.

If your existing mortgage deal is due to end in the next six months or so then I would suggest taking action a little earlier than normal. If the credit crunch does get worse then lenders are going to start getting even tougher on mortgage and re-mortgage applications. Contacts in the residential market already say lenders are asking more questions, requiring more documentation and taking longer to agree borderline mortgage applications. That will certainly happen in the investment sector as well. So don’t think a new deal can be wrapped up as quickly as in the past.

Secondly, I’d no longer assume I can arrange my own re-mortgage after a quick look at the best-buy tables. For at least a year I’ve been saying that you can no longer just look at rates when comparing deals. The huge disparity in fees can dramatically skew the equation and make a high rate, low fee deal work out better value overall than a rock bottom rate alternative with a big set-up charge. Comparing the deals pretty much takes a spreadsheet nowadays. But this alone isn’t why I think independent help is required. Getting the right mortgage pushed through now involves an extra wild-card – the willingness of lenders to take you on and the speed at which they might work.

You can go quite a long way down the application road before being refused a loan because you don’t have quite enough equity, because the rental cover figures are being calculated on a new basis or because the lender decrees that your property is the wrong type in the wrong area. It’s a vicious circle, but get one re-mortgage refusal and things get a lot tougher when you start the search again.

Specialist brokers who arrange buy-to-let mortgages every day are the first to get a feel for the way the wind is blowing. They can tell straight away that Lender A is getting tougher on valuations, while Lender B is more concerned with rental cover, for example. They know that Lender C is making borrowers jump through a lot more hoops and now takes an extra month to arrange re-mortgages, while Lender D is still keen to build up market share.

As we all get through some pretty uncharted financial territory this kind of information is going to be more important than ever. The days of cheap mortgages have long gone. The days of easy mortgages have passed as well. So don’t leave it too late if you’re going to need a new deal early in the New Year.