Buy-to-let News Round-up.


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 City AM.

Glad you got into buy-to-let? You should be – because it’s about to get harder for new investors to follow suit.

Over the past few days news has leaked out about the ways big lenders including Bank of Ireland, Mortgage Express, Mortgage Works and Royal Bank of Scotland plan to restrict the availability of their best-buy loans. Experienced, existing buy-to-let investors will be first in line. Newcomers might be excluded altogether. And other lenders are likely to follow suit as fears grow that last year’s lending boom could have brought in too many high-risk loans on dud properties.

Lenders are tacking the issue in different ways. Bank of Ireland, Mortgage Express and Mortgage Works are all taking the view that long-term landlords will be better risks on new loans. Mortgage Express, for example is offering a new best-buy deal which needs 110 per cent rental cover, but only for those who have had other buy-to-lets for at least a year. The idea is to cherry-pick the kind of investors who know what they are doing.

Royal Bank of Scotland is taking a different approach. It is going back to the future by taking borrowers’ incomes into account as well as rental cover. If you household income is £75,000 or more you can get the bank’s most flexible deals and can borrow with just 100 per cent rental cover. With household income between £35,000 and £75,000 you will only have an application approved if you get 110 per cent rental cover. Those on less than £35,000 need to prove the old faithful of 125 per cent rental cover. The idea, clearly, is that high earners will have deeper pockets if times get tough.

It is hard to criticise the moves. The great buy-to-let mortgage free-for-all of the last year, when lenders all seemed to abandon their old lending criteria, was always going to be dangerous. Yes, the move from 125 to 100 per cent rental cover wasn’t as simple as some newspapers suggested (it took up too much space to go into detail of whether the rental cover would be based on real or arbitrary rates). Bu the reduction in deposits and the cut in rates were very real. And bringing in a flood of inexperienced investors at what could be the temporary top of the market couldn’t fail to set of warning bells. One of the beauties of buy-to-let is that in a rising market you can learn from your mistakes. I have spoken to plenty of long term landlords who have completely altered the types, locations or condition of properties they buy over the years. Would they have wanted to stick to their original property types? No chance. They might have gone bust, they say.

The problem with making mistakes about property is that they can be expensive if the market is moving against you. It is only when times are good that you can swallow minor losses and cross subsidise the good with the bad.

A brand new investor making a big mistake today won’t have this luxury. So bring on tougher lending requirements. We all benefit from a stronger, safer market. And it’s not as if novice investors won’t have any lenders touting for their business. The likes of Mortgage Express and West Bromwich building society have just been tipped as providers with good deals still open to new and existing investors alike. And Landlord Mortgages and other brokers can find a whole host more lenders if you ask.

The likes of BM Solutions, meanwhile, has been offering a tracker deal where the rate for buy-to-let investors is only 0.01 per cent higher than the rate for owner occupiers. While investors need a marginally bigger deposit that residential customers it shows that the investment mortgage market is far from dead. It’s just getting ever more complicated.

Also in the news over recent days – yet again – are the latest repossession figures. The Financial Services Authority is said to be looking at figures that say repossessions now make up 25 per cent of all properties sold at auction, up from just 6 per cent a year ago. Some eight out of ten of the repossessed properties are said to be in the buy-to-let heartlands and include a high proportion of new build flats. A worrying trend, say the commentators. A buying opportunity, I wonder?

Finally, good bye, for now, to Home Information Packs for owner occupiers. What will this mean for the energy performance certificates expected to be introduced for investment homes from October? Like everything to do with this beurocratic nightmare it is impossible to say. One property professional I spoke to says he thinks it means the investment scheme is dead in the water. With so many other fires to put out the Government won’t want to take its eye off the ball and complicate things in the investment sector. But another insider was more pessimistic. He predicts that if Hips can’t be introduced to owner occupiers then introducing an element of them to the buy-to-let market will be seen as a way to save face and make out something, at least, is being done.

No idea yet who will be right. But I take my pessimistic friend’s point that buy-to-let landlords are easy targets because we can’t expect much public sympathy. Watch this space.