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Buy-to-let Watch: Accidental landlords need your help

Research published by Foundation Home Loans has revealed that a staggering one in five buy-to-let mortgage borrowers are now ‘accidental landlords’; a constituency of property owners whose participation in the rental market is driven by necessity and circumstance as opposed to design.

The research seems to displace widely accepted notions of a sector dominated by ‘professional’ or career-based investors and raises valuable questions as to the role of lenders and brokers in catering to the needs and relative inexperience of this growing market (especially given that many entrants are now looking to expand their portfolios).

Moreover, with asking prices continuing to fall prey to turbulent or unsettled market conditions and increasing numbers of owners opting to offset mortgage payments or forego cut-price sales by letting homes to paying tenants, the chances seem likely that this trend will increase over the coming years, rather than diminish.

With that in mind, let’s look briefly at one of the — limited — available market options.

Owners who choose to rent out their property, as opposed to selling it, are currently obliged to apply to their lender for a ‘consent to let’; a time restrictive arrangement that invariably commands an increase in existing mortgage rates (although exceptions apply). Alternatively, and as lenders begin to respond to the shifting sands of the rental market, they can elect to switch their residential mortgage to one which is specifically designed to meet the needs of an ‘accidental’ custom base.

Within the past few weeks, for example, Sainsbury’s have launched a new mortgage product to accommodate non-professional landlords and this venture constitutes a welcome and much-needed industry precedent for supplying and fulfilling growing levels of ‘specialist’ demand.

The deal is subject to the usual rental income demands associated with buy-to-let mortgages, such as a demonstrable ability to continue paying at increased interest rates But the real caveat here is that qualifying applicants must prove that their property was bought without any prior intention to let and that they do not own any other buy-to-let properties.

Now, this may be fine under certain restricted circumstances, but is unlikely to be of any value for the growing number of owners who ultimately wish to increase their property holdings. Lenders must learn to prioritise flexibility and inclusivity when designing future products, because as things stand, other options merely mirror existing buy-to-let products.

Likewise, brokers who offer these products must be ready to offer levels of guidance and advice which reflect a probable paucity of market knowledge – in short, to do their duty by inexperienced customers.

Indeed, whether it’s by so-called ‘accidental’ means or via a more ‘professional’ route, property investment is something that should be celebrated and encouraged. Time for the industry to respond.

Buy-to-let rates (June ’18)

Rate MAX LTV % Description Arrangement Fee Rent Cover ERC
1.38% 60%

Post Office Money in conjunction with Bank of Ireland

2 year fixed

£500k max. loan

£1,295 145% @ 5.5%

3% in Yr 1

2% in Yr 2

1.49% 65%

The Mortgage Works

2 year tracker

£1m max. loan

£1,995

 

145% @ 5.5%

2% in Yr 1

1% in Yr 2

1.75% 75%

Virgin Money

2 year fixed

£1m max. loan

£1,995

£600 cashback

145% @ 5.5%

1.5% in Yr 1

1.5% in Yr 2

2.14% 60%

BM Solutions

5 year fixed

£1m max. loan

£1,995 135% @ 5.25%

5% in Yr 1

4% in Yr 2

3% in Yr 3

2% in Yr 4

1% in Yr 5

2.54% 75%

Santander

EXCLUSIVE RATE

5 year fixed

£750k max. loan

£1,999

Free valuation Free legals or £250 cashback on remortgages

130% @ 4.5%

5% in Yr 1

5% in Yr 2

5% in Yr 3

5% in Yr 4

5% in Yr 5

Ying Tan is managing director of Buy to Let Club

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