Buy-to-let news to Friday, March 23rd, 2018

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A third of landlords oblivious to BTL mortgage changes 

A leading mortgage broker firm has urged buy to let landlords to get in touch, following a new report, which suggests a third of investors remain oblivious to regulatory changes brought about by the Prudential Regulations Authority (PRA) and their potential impact on refinance and new mortgage applications.

Andrew Turner, chief executive at Commercial Trust Limited, stated:

“The PRA brought in two-phases of change in 2017, first to affordability calculations for all landlords and second by bringing in additional underwriting measures for portfolio landlords. The tightening of affordability has meant that some landlords are finding it harder to secure the financing they need.

“The additional complexity this added for landlord investors means that there is an even stronger reason to turn to a large broker firm, who can assess the options available, across a myriad of lenders and products.

“Many smaller intermediary firms are struggling to keep up with the diverse range of interpretations of the PRA changes. Fortunately, Commercial Trust has the scale of resource available to keep on top of the variety of buy to let options and identify robust solutions for our landlord clients, we also work very closely with a sister lender in our group who offers particularly niche solutions in the buy to let space."

Turner’s comments follow the publishing of a new report, which highlights just how many landlords do not know about the PRA changes.

The data, produced by Shawbrook Bank, revealed that 28% of brokers questioned, indicated that their clients were totally unaware of the changes, while 61% stated that their clients were aware, but lacked sufficient clarity.

Karen Bennett, managing director of commercial mortgages at Shawbrook Bank, said:

“This survey highlights the critical need for more education in the investor market regarding the impacts of regulatory change.

“The benefits of increased awareness are two-fold. Firstly, it should help prevent clients from sleepwalking into a problem and allow them to adjust their investment strategy accordingly.”

Andrew Turner, added:

“I whole heartedly agree with Karen’s sentiment. To plan their investment strategy effectively, landlords must keep informed. I issue regular updates to Commercial Trust clients for this very reason.

“There is a lot of nay-saying about buy to let at the moment, as the pain of change embeds itself. However, in reality, it remains a robust investment option, it is just not as easy as it once was.

“Our expertise is available to assist landlords; with such an important commodity at stake, why wouldn’t you seek the help that could ease your burden?”

Mandatory client money protection edges closer 

Mandatory client money protection moves closerLandlords and tenants in England, could soon receive an extra layer of protection from rogue letting agents, with the introduction of a mandatory client money protection scheme.

The claim comes from Tim Frome at Hamilton Fraser, who has suggested that a change in law could be made as soon as April.

A client money protection scheme safeguards landlords and tenants against the theft or misappropriation of their money, by owners of a letting agent.

Under the current rules, letting agents in England already have to indicate whether or not they are a member of a client money protection scheme.

Frome believes that a change in law could force all agents and property managers to join an approved scheme over the coming weeks:

“After being heavily involved in the two consultations to date, I am delighted that the government appears to be following Scotland and Wales in moving quickly to make membership of a client money protection scheme compulsory for letting agents in England.

“With key provisions in place, the groundwork has been laid for CMP regulations to be introduced, the details of which are likely to be unveiled in April when most regulations appear.”

His comments have been further backed up by a statement from Lord Palmer of Childs Hill, who co-chaired the consultation committee, stating:

“I am delighted to say that government is committed to making membership of a CMP scheme mandatory, based on the review which I co-chaired. I expect the regulations to be finalised and released very shortly.”

Exemption may not be enough ahead of EPC landlord deadline 

A leading landlord body has warned members that applying for exemption from the new Minimum Energy Efficiency Standards (MEES), may not guarantee exclusion from enforcement of improvements.

Dave Princep, health and safety consultant at the Residential Landlords Association (RLA), has indicated that local authorities could still force landlords to carry out work, even if they have applied for exemption from MEES.

New energy standards require rental properties to have a mininum E-rating on the latest Energy Performance Certificate (EPC), by April 1st, 2018. Failure to meet this standard will mean that the landlord will be unable to establish any new tenancies, with the requirement extending to all rental homes by April 2020.

At the time of writing, landlords have under two weeks to implement improvements or to add their property to the exemption register.

However, Princep has warned that exemption may not be enough, stating:

“If you have a low EPC, applying for an exemption should really be your last resort.

“Any exemption registered on the database triggers an automatic email to the relevant local authority, informing them that the premises is F or G band.

“The local authority could then take action under the housing health and safety rating system (HHSRS) to force the landlord to carry out improvements works to remedy a cold hazard, with HHSRS unaffected by the exemption register. In short, you may have to do the works anyway.”

Princep also indicates that the Government’s Clean Growth Strategy is likely to up the ante on energy efficiency standards within the private rental sector over the coming years, suggesting that the minimum EPC rating could be raised incrementally and putting E-rated properties under threat of needing more work.

“Against this background it is recommended that landlords whose premises are below a band C to consider undertaking all cost-effective energy improvements whenever undertaking major refurbishment or significant works at their properties.

“Those with band E premises should look carefully at their premises and carry out any less disruptive and cost-effective works as soon as they can and they consider scheduling in other energy refurbishments over the medium term.”

Evidence that PRA rules are restricting financing for landlords 

PRA rules make mortgage financing harderNearly two thirds of landlords aware of the changes, feel that the Prudential Regulation Authority (PRA) rules introduced in 2017, have made it harder to obtain a buy to let mortgage.

In its latest NLA Quarterly Landlord Panel survey, covering Q4 of 2017, the National Landlords Association, indicates that 63% of landlords, believe the changes have made it harder to meet lender affordability stress test requirements for financing, with that figure increasing to 70% for landlords who own four or more properties and have been classified as portfolio landlords.

But perceptions extend beyond added difficulty, with 48% of landlords also stating that the new rules have slowed down processing times for applications.

Furthermore, 46% of investors also believe that the amount of buy to let choice in the market place has reduced, with fewer products available.

Richard Lambert, CEO of the NLA said:

“These findings show that the PRA’s changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios. Given that the private rented sector now makes up 20 percent of the housing market, it is vital that professional landlords are incentivised to continue providing good quality affordable housing to those who need it. This appears to be achieving quite the reverse.

“Landlords looking to add new properties to their portfolios need to be conscious of the new requirements. We suggest talking to your mortgage broker or bank before committing to any new property.”

Andrew Turner, chief executive at Commercial Trust Limited, added:

“The implications of the PRA changes are starting to be keenly felt now by many landlords, but I would like to add some reassurance that there is still a wide range of solutions available.

“We are regularly approached by clients who are struggling to find a buy to let solution; but by investigating niche product areas, using creative thinking and applying our tenacious attitude to achieving success, Commercial Trust can often turn that around.”

February fall in inflation sparks hopes that a base rate rise may be delayed 

Inflation fell in FebruaryThe latest data from the Office of National Statistics (ONS), showed that the headline rate of inflation reduced in February, from 3.0% to 2.7%, fuelling hopes that this might lead to the Bank of England delaying any future increase to its base rate.

This could be interpreted as good news for many buy to let landlords, as an increase in the base rate often precipitates a rise in mortgage rates and consequently monthly mortgage repayments, depending on the investors product type.

Comments from members of the Bank’s Monetary Policy Committee, in recent weeks, have hinted at an imminent base rate rise, with inflation cited as a key factor in this decision. It has widely been anticipated that an increase from the current base rate of 0.5%, could occur as soon as May.

However, with news that the headline rate of inflation, comparing prices on a range of goods and services for the latest month, with the corresponding month a year earlier, has shown a 0.3% fall from February 2017 to February 2018, a change of heart may be on the cards.

Base rate remains unchanged in March 

Base rate held at 0.5%The Bank of England’s Monetary Policy Committee (MPC) voted 7-2 in favour of maintaining the base rate at 0.5%, in its meeting dated March 22nd, 2018.

The decision puts less pressure on lenders to increase mortgage rates in the short-term, although the Bank of England warned that future rates increases are likely.

The announcement came just a few days after news that CPI inflation fell from 3.0% in January to 2.7% in February. The Bank of England aims to bring inflation down to 2% in the long-term and cites this as an important factor in its consideration of the base rate.

The MPC stated:

“As in February, the best collective judgement of the MPC remains that, given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent. In light of these considerations, seven members thought that the current policy stance remained appropriate to balance the demands of the MPC’s remit.”

The next MPC announcement takes place on Thursday, May 10th.

Government selects software firm for MEES exemptions

MEES exemption software selectedWith the April 1st deadline for landlords to meet new Minimum Energy Efficiency Standards looming large, the Government has selected a software firm to handle some types of exception.

The Department for Business, Energy and Industrial Strategy has opted to use software from arbnco, to handle three of the eight exceptions, permitted under the new rules.

From April 1st, landlords in England will be unable to create a new tenancy agreement on a rental property, unless it has a minimum Energy Performance Certificate (EPC) rating of E.

However, in some circumstances, a landlord may apply for an exemption, if their property falls below this rating.

Under an agreement, arbnco will process exemptions where improvements to a property have a payback period which exceeds seven years; where a property rating is below E but where no improvements can be made; and where all relevant improvements have already been made but the property still remains below E.

Landlords who believe that their F or G EPC rated property qualifies for an exemption from the new MEES rules, must join the National PRS Exemptions Register and should e-mail the BEIS minimum standards team at PRSregisteraccess@beis.gov.uk.

Rate roundup 

Rates round-upBelow are the top 3 buy to let mortgage deals, by lowest initial rate, for fixed, tracker and variable products.

This table updates twice daily with the latest deals from a diverse range of specialist and high street lenders. Call our team to discuss any deal or click through for the full range.

Rate Product Monthly cost LTV Lender fee APR
1.39% then 5.00% Fixed for 26 months Fixed for 26 months £115 60% £2,178 4.70% Enquire
1.50% then 5.19% Variable for 24 months Variable for 24 months £125 75% £295 4.78% Enquire
1.49% then 5.00% Tracker for 24 months Tracker for 24 months £124 60% £2,178 4.76% Enquire
1.73% then 4.99% Fixed for 26 months Fixed for 26 months £144 70% £2,239 4.75% Enquire
1.50% then 5.19% Variable for 24 months Variable for 24 months £125 75% £295 4.78% Enquire
1.89% then 5.00% Tracker for 24 months Tracker for 24 months £157 70% £2,178 4.82% Enquire
2.94% then 4.99% Fixed for 24 months Fixed for 24 months £245 80% £1,825 4.94% Enquire
2.89% then 5.19% Variable for 24 months Variable for 24 months £240 80% £295 4.98% Enquire
3.90% then 5.50% Tracker for 24 months Tracker for 24 months £325 80% £500 5.43% Enquire
4.59% then 6.58% Fixed for 24 months Fixed for 24 months £382 85% £3,110 6.73% Enquire
4.64% then 6.58% Variable for 24 months Variable for 24 months £386 85% £3,110 6.74% Enquire

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.

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