What Do The New Low BTL Interest Rates Mean?
Buy-to-let mortgage rates fell to just 2.76% in February. This is the lowest since January 2012 which is when the rates began being recorded. When interest rates fall, consumer demand increases. There’s more going on than meets the eye though.
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While the interest rates are at a record low, there’s fees attached to access the deals, tax changes already in place with more to come, in addition to more stringent affordability tests to access Buy-to-Let mortgages. Each of these should be considered prior to applying.
Major Considerations Before Investing in Rental Property
Arrangement fees
Buy-to-let mortgages generally have high arrangement fees attached to them. The best rates are often on two-year fixed-term deals. However, as the property investment market is undergoing significant changes, it may be wiser to invest early in longer-term fixed-rate deals to avoid some of the tougher affordability tests due to come in later this year, affecting landlords with four or more properties (Portfolio Landlords).
One of the advantages just now with the deals is that it’ll stave off the effects of the changes to affect portfolio landlords. It’ll only buy some time though because the changes are still going to affect all landlords – eventually!
Tax considerations
It’s probably fair to say that the Bank of England’s Prudential Regulatory Authority has the property investment market in its sights.
Last April a 3% Stamp Duty was imposed on residential landlords. Starting from this April, tax relief will gradually be tapered down for finance costs associated with rental property, such as the interest you pay for finance and mortgage arrangement fees, which can be high. This coming tax year will see a 75% restriction, gradually being phased down to the basic rate of tax relief of just 20%.
It’s definitely something to consider if you’re intending to tie into a five-year fixed-term Buy-to-Let mortgage deal. There are some competitive deals around at the moment, but given the current changes facing landlords now and in the near future, long-term financial planning should be done so you can go into property investing with your eyes open. There are significant changes on the horizon.
Also worth considering is if you rent the property and later sell it, perhaps to cash in on a rise in property prices… because you’re selling property that’s not your home, you may be liable for Capital Gains Tax.
The New PRA Guidelines for Lenders Assessments
Prompted by the rapid growth of the property rental market, the PRA is acting to ensure appropriate lending standards are applied to all Buy-to-Let mortgages.
The affordability tests for BTL mortgages
Following a review of the Buy-to-Let mortgage market, the PRA has issued new affordability assessment guidelines. The assessments won’t just cover the interest on any mortgage. It’ll also take into account any property management fees, council tax, repairs to the property etc. In addition, part of the affordability test with some lenders will also take into account the person’s tax rate as the additional income may push a landlord into the higher bracket for tax liability at 40% or 45%.
Furthermore, lenders typically want to see landlords’ affordability assessment show that the rental income covers the whole of the monthly mortgage repayment plus 25%. For example, a mortgage costing £400 should have a rental price of £500 a month. This is increasing, with some lenders already having increased the rate to 145%. Using the same example of a rental price of £400 per month, the rental price would need to increase to £580.
In practice, when considering a property for rental, it’s worth considering what rental price the property could fetch. It should be a minimum of 145% above whatever the monthly mortgage price is.
If you fail to take into account the rental price the property can reasonably be expected to fetch, you may find lenders refuse your application based on failing to satisfy the affordability tests.
Portfolio Landlord Changes
This is the most significant change to Buy-to-Let mortgages in some time. A Portfolio Landlord is someone who has four or more properties. From September 2017, when applying for Buy-to-Let finance, lenders need to assess the entire portfolio and not just assess the risk based on the individual property.
For example, a landlord with five properties in his or her portfolio will be required to provide lenders with financial details associated with each property, proving the rental income and the amount borrowed on each property as well as associated costs for each. It won’t matter if the mortgage products are with different lenders. The entire portfolio will be evaluated.
When that time comes, it may even see an increase of specialist mortgage providers such as Precise Mortgages, GoDirect.co.uk, and The Business Mortgage Company.
Another thing to note with specialist lenders is some are reactive to the changes. An example of that was witnessed when the Stamp Duty was imposed last year. Some specialist lenders made their offers attractive by offering cash back at a level of at least 3% to offset the cost of Stamp Duty that borrowers would have to pay.
In Conclusion
Buy-to-let finance is seeing rates drop. However, it’s only the cost of finance that’s dropping. Operational costs for landlords are increasing because of restrictions on tax relief in addition to how Income Tax will be calculated in the future.
What may lock in savings today could carry associated costs further down the line.
If you’re tempted to invest in a property with a view to renting as a landlord, the best investment you could take is to seek professional advice before diving in with an application for a BTL mortgage – in particular, if you already suffer from a poor credit history.
The reason is that lenders are tightening up on the lending criteria they use. Therefore, it’s pertinent to get advice first and only when you’re sure it’s the right choice, then to seek a mortgage lender in line with the level of risk they’re being asked to take on. In other words, please make your first application count because it’ll impact your credit report, thus affecting all future mortgage applications.
Are homeowner loan rates better than buy-to-let remortgage rates in 2024?
A home loan low credit score usually has higher rates than a bad credit buy-to-let mortgage, but some prime-secured loans have very low rates better than some buy-to-let mortgages and can allow you to get higher loan values.
The Buy To Let Best Rates for 2024
For 2024 the buy to let best rates are still likely to be around 5% and higher rates for cheap houses for sale in Burnley.
Navigating the Financial Landscape of Equity Release, Homeowner Loans, and Mortgages in the UK
The financial market is evolving to accommodate an increasingly diverse clientele, with tailored financial products to meet specific needs. As the UK’s ageing population grows, there’s a rising need for products like equity release, homeowner loans, and retirement-only interest mortgages. Let’s delve into these schemes to gain a clearer understanding.
United Trust Bank Secured Loans
United Trust Bank offers an array of financial products, and one of its most sought-after services is secured loans. A secured loan requires the borrower to offer an asset, often their home, as collateral. This arrangement provides lenders like United Trust Bank a security blanket in case the borrower defaults. Before considering such a loan, it’s essential to carry out an extensive United Trust bank review. Remember, your home is at stake if you’re unable to repay the loan.
Equity Release: Unlocking Wealth Tied Up in Property
Equity release schemes allow homeowners, typically over the age of 55, to access the wealth tied up in their homes without selling them. The amount released can be a lump sum or regular income. The primary advantage? No monthly repayments. The loan amount, along with the accumulated interest, is repaid when the house is sold, usually after the owner’s demise or if they move into long-term care.
For homeowners under the age of 55 wondering about their options, the equity release calculator under 55 can provide insights into how much equity they can release from their property.
Homeowner Loans: Securing Future Aspirations
Homeowner loans, or second-charge mortgages, are loans secured against your home, just like a traditional mortgage. The difference? They are second in line to your primary mortgage. Given the security of homeowner loans, they usually come with more favourable interest rates and can be an effective solution for debt consolidation or financing significant expenses.
Retirement Interest-Only (RIO) Mortgages
RIO mortgages are relatively new in the UK financial landscape. They allow retirees to take a mortgage where they only pay the interest each month. The capital is repaid when the property is sold. This type of mortgage provides retirees an option to release some of the equity in their home while ensuring monthly repayments are manageable on a fixed retirement income.
Remortgages For Over 65S
With age often comes the need for financial flexibility. The remortgages for over 55s segment ensures that older homeowners can remortgage their homes, possibly securing a better interest rate or releasing equity. As homeowners age, their financial needs change, and remortgaging can be a tool to meet these evolving needs.
Best Remortgage Rates 5-Year Fixed
The mortgage market is incredibly dynamic. Locking in a rate can provide peace of mind for homeowners looking to remortgage. Exploring the remortgaging deals in 2024 can offer insights into the best five-year fixed rates currently available. Remember, while fixed rates can provide stability, they may have restrictions, so always read the terms carefully.
Fixed Rate Loan
Fixed-rate loans have been the preferred choice for many because they provide certainty. With interest rates set for a specified period, borrowers have the assurance of consistent monthly payments. Delving into the fixed rate loans 2024 offerings can provide clarity on the current market rates and help borrowers make informed decisions.
Mortgage Over 70
Age should not be a deterrent to financial freedom. As the name suggests, the mortgage over 70 is tailored for older homeowners. It underscores the industry’s recognition of longer life expectancies and the desire for financial autonomy well into the twilight years.
Whether you’re a young professional starting on the property ladder or a retiree seeking financial flexibility, the UK’s financial market has products tailored to your needs. Always consult with a financial advisor before making any decisions to ensure the best outcomes tailored to your circumstances.