Lenders compete for buy to let business

Good news for landlords this week. Lenders compete for buy to let business, rate drops from 5 top buy to let lenders, tax tips for short term lets and DWP gives Universal Credit apology;
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Trade association, UK Finance, has for the first time released data from its lender members, on the volumes of their buy to let lending.

The report illustrates strong and growing competition amongst buy to let lenders, which is very good news for UK landlords, looking to invest in rental property.

Over the last six years, the number of buy to let mortgage products has increased five-fold, and average buy to let mortgage interest rates have dropped.

Back in 2013, the average rate was around 4.25%, where in October 2019 this average sat at just over 3%.

The lender data is categorised into four types, banks, building societies, mid-tier lenders, and specialists.

Amongst them, specialists and building societies have experienced strongest growth:

UK Finance BTL Lender growth

“Growth in gross buy-to-let lending by lender type, 2017-2018”
Source: UK Finance Largest Lenders

The ability of specialists and building societies to adjust their underwriting, in line with shifts in the market, is seen as advantageous and has helped achieve this growth.

So, where larger lenders with automated systems may give a quicker response to an application, those lenders who manually underwrite, have the opportunity to flex their underwriting to fit edge cases that might otherwise be turned down.

As a result, the range of underwriting approaches is not just good news for the straightforward deals.

The picture is favourable across all types of buy to let mortgage lending – even complex cases have benefited from tailored underwriting.

There are benefits to both and it is the job of your broker to steer you through this based on their specialist view of your case.

Overall, buy to let mortgage rates have continued to become more and more accessible to landlords and it is this fluidity that is helping to maintain a firm future for buy to let investment.

Top 20 UK Finance lenders

Not all lenders in the buy to let mortgage space are members of UK Finance, however there are 71 lenders featured within the data, of which the following is an extract of the top 20.

Lender

2018

2017

Rank

Balances (£bn)

Market share

Rank

Balances (£bn)

Market share

Lloyds Banking Group

1

50.97

20.3%

1

52.51

21.8%

Nationwide BS

2

31.16

12.4%

2

30.74

12.8%

Barclays

3

16.53

6.6%

6

13.77

5.7%

Coventry BS

4

15.72

6.3%

5

13.88

5.8%

Virgin Money

5

14.57

5.8%

4

14.19

5.9%

Royal Bank of Scotland

6

12.87

5.1%

3

14.89

6.2%

Topaz Finance

7

10.32

4.1%

44

0.15

0.1%

Paragon Group

8

10.31

4.1%

7

9.74

4.0%

Santander UK

9

8.27

3.3%

9

6.81

2.8%

Bank of Ireland

10

7.47

3.0%

8

7.41

3.1%

OneSavings Bank

11

6.48

2.6%

10

4.97

2.1%

Precise Mortgages

12

4.53

1.8%

15

3.25

1.3%

Leeds BS

13

4.33

1.7%

13

3.48

1.4%

TSB Bank

14

3.79

1.5%

11

4.22

1.8%

Aldermore Bank

15

3.67

1.5%

14

3.35

1.4%

Yorkshire BS

16

3.18

1.3%

16

2.95

1.2%

Skipton BS

17

3.05

1.2%

18

2.61

1.1%

HSBC Bank

18

2.79

1.1%

17

2.72

1.1%

Metro Bank

19

2.48

1.0%

20

1.85

0.8%

NRAM plc

20

1.96

0.8%

19

2.22

0.9%

"UK Finance members, value of BTL mortgages outstanding, UK"

Source: UK Finance

You can download the full list of 71 UK Finance lenders, here.

Rate drops from 5 top buy to let lenders

2020 has already brought about good news for UK landlords. Five lenders ranked within the UK Finance top 20 have dropped their buy to let mortgage rates within the first month of the year.

As early as the 7th January, Paragon Bank, ranked 8th in UK Finance data, dropped its buy to let mortgage rates.

Paragon Group has 4.1% market share, amongst UK Finance’s lenders.

On the 9th of January, Virgin Money announced cuts to their buy to let mortgage range. Virgin holds position 5 with 5.8% market share.

Mid-month, on the 16th January, Nationwide’s buy to let arm, The Mortgage Works (TMW) reduced rates across its entire range. Nationwide is the second largest lender on the UK Finance list, with 12.4% market share.

At the tail end of the month, two other big players in buy to let space have also dropped their rates.

Accord, the buy to let division of Yorkshire Building Society, dropped their buy to let rates on 27th January and on 28th January, TSB made an announcement that they too were reducing their buy to let rates.

With an anticipation that the Bank of England base rate may also be cut, on 30th January, there is potentially even more good news to come.

Andrew Turner, chief executive at Commercial Trust Limited had this to say:

“The buy to let industry is a growing market with reducing interest rates. Regulation and tax changes haven’t changed that.

“The election result, whilst in itself does not give answers to the outcome of Brexit, does give certainty in terms of the direction of travel. That is what investors have been crying out for.

“As we have seen within the industry press, the breadth of finance options available to landlords has never been greater. Even for those who, in the past, may have struggled to get a competitive deal, due to the complexity of their circumstances.

“Achieving success in business centres on an ability to adapt to change effectively. The private rental sector has proven it can do this very well.”

Tax tips for short term lets

Interest in AirBnB style short-term lettings has grown significantly, in recent years. For those investigating this as an option, the position on tax is vital.

Chairperson of the Short Term Accommodation Association (STAA), Merilee Karr, has highlighted her three tips on tax for short-term let UK landlords:

  1. Whole-property rentals attract a tax-free allowance of £1000. Where a landlord’s pre-expenses income is one thousand pounds or less, it does not have to be declared to HRMC and there is no tax to pay.
  2. Council tax versus business rates. In England, renting a home for less than 140 nights in total means council tax is payable. Renting a home for 140 nights or more per year classes the property as self-catering and so means business rates are applicable.

    In Wales, the self-catering classification and thus business rates, are applicable if the property is available for 140 night or more per year and actually rented out for 70 days.

  3. Rent a Room scheme. With short term lets of one room in a home, income of up to £7500 can be received, tax-free. The details should be outlined to HMRC in a tax return.

The tax relief on whole property rentals and the rent a room relief cannot both be claimed, only one of the two, in applicable circumstances.

When investigating tax matters, Commercial Trust Limited always recommends seeking advice from a tax professional.

DWP Universal Credit apology

The Department for Work and Pensions (DWP) has apologised for an error with Universal Credit payments, which arose when they upgraded their systems.

Prior to the upgrade, the housing element of a Universal Credit payment was identified to a landlord with a pre-provided reference. This allowed landlords to distinguish which tenant the payment was for.

Initially after the launch of the new system, this code was replaced with an indistinguishable 28-digit reference, which bore no relevance to the recipient.

The DWP has said that the issue as quickly identified and fixed, but apologised for the inconvenience caused.

Moving forward, landlords should expect to see a return to the use of the code they provided with the UC47 form.

A spokesperson for the DWP gave the following advice to any landlord still experiencing, or left with, unresolved problems:

“Any landlord who has identified an issue with private rented sector managed payments should raise this with their local partnership manager or Jobcentre Plus contact so that it can be investigated.”

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