• EU Directive on Buy to Let Mortgages

    The EU Directive on Buy to Let Mortgages was quite big news last week.  A quick round up of the reaction to the news follows, but first a bit of background:

    What is the EU Directive on Buy to Let Mortgages

    EU Directive on Buy to Let Mortgages
    EU Directive on Buy to Let Mortgages was set to change the UK market

    The European Union has been considering a set of new rules governing the supply of consumer credit, and in particular mortgages.  As part of the consultation process the EU sent out proposals to all member states, which if adopted as-is would have seen major changes to how Buy to Let mortgages are regulated.

    In essence the proposals would have required lenders to assess affordability of each individual loan without taking into account the rental income from that property.  Clearly this got a lot of people quite excited.

    It is worth bearing in mind that these were only proposals, and as such were intended to spark discussion.  It is also worth pointing out that the UK property market is unlike the rest of the EU.  The concept of private individuals owning multiple properties and renting them out is nowhere as common in most of Europe as it is in the UK.  So not entirely surprising that they would have based as set of proposals around the typical european set up.

    The Reaction:

    So, here’s a quick round up of the some of reaction to the news.

    The NLA took some credit for the change:

     

    NLA saves buy to let mortgages from being outlawed by European Union directive

    The Mortgage Directive, officially known as the Credit Agreements Related to Residential Property Directive (CARRP) attempted to create a single regulatory framework which would govern all mortgages within the European Union. The EU lobbied hard for this directive so that EU citizens would understand the regularity regimes when purchasing properties in different member states.

    The NLA has worked extensively with several European Parliaments and through pan-European associations such as the International Union of Property Owners (UIPI) and other UK and EU trade bodies to secure a complete exemption for buy to let mortgages from the directive.

    The online magazine Introducer Today basically quoted NLA reaction:

    BTL narrowly survives “catastrophic” EU Directive 

    A new EU Directive that would have made buy-to-let mortgages illegal has been successfully averted down after industry lobbying.

    Mortgage Introducer also relied heavily on the NLA press release:

    NLA welcomes EU decision on buy-to-let – Buy-to-let – Mortgage Introducer UK

    The mortgage directive, officially known as the Credit Agreements Related to Residential Property Directive, attempted to create a single regulatory framework which would govern all mortgages within the European Union.

    The final text is now going through the trialogue process which involves all 27 heads of state and the European parliament who will analyse the new revised before voting on the new directive to sign it off.

    The story was also covered extensively in the mainstream press:

    UK landlords secure reprieve after early draft of EU mortgage rules threatened to ban buy-to-let completely

    Early drafts of new mortgage rules currently being approved by the European Union would have banned buy-to-let loans completely and were only reversed after lobbying by UK landlords.The National Landlords Association said the original draft of the EU mortgage directive, which aims to create a single regulatory framework to govern all mortgages within the EU, would have halted the current booming buy-to-let market.It says that in constructing the directive, the EU Commission didn’t take into account the nuances of unusual mortgage products such as buy-to-let that only exist in Britain and Ireland.

    To be fair to the EU, these were proposals intended to protect consumers.  Given the track record of the financial industry generally, and mortgage availability over the last decade or so, it does not seem unreasonable.  Contrary to some of the reporting, the proposals were not intended to “ban” buy to let lending.  No doubt that had the proposals gone unchanged it would have been a major problem for people operating under the current market setup, but this would have been an unintended consequence.  Not the intention.

    Surely this is how drafting proposals and inviting response is meant to work.  An example to governments about listening to feedback ?

  • Does it matter if private rents increase

    In 1952 around half the population were renting their homes. Compare that to 2011 when 20 percent are living as tenants and you get a sense of how much the housing stock has changed over 60 years and why housing costs matter to people who pay private rent.

    As we’re talking percentages its worth giving that some context by stating that there are now 27 million homes in the UK compared with 14 million in 1952. As you would expect London and the south east have seen the largest increase in house building and values over that period.

    In makes sense then that the media pays a lot of attention to mortgage interest rates. If the figures above are to be believed then there are 23 million homes are owner occupied with people repaying a mortage. However with the number of people renting increasing year on year the level of rent being paid is becoming relevant.

    If its accepted that there are around 5.4 million people renting their home it makes sense to pay attention to how much they are paying in rent.

    Any number of reports have suggested that nationally rents are increasing. The LSL report has consistently reported increasing rents over the last year or so.

    Average rents across England and Wales haven risen by and stand at £709 per month – 2.4% higher than year ago.

    Why does it matter if private rent goes up?

    Broadly speaking there are two types of tenant. Private tenants renting from private landlodrds and public sector tenants reining from housing associations and local authorities.

    Private tenants occupy their homes with relatively limited security of tunure and rents are set by the market rate. Whilst the government has some control over rents being charged in public sector there is virtually no control over private rents.

    This matters because private rented property is typically occupied by a higher percentage of lower paid workers, or people not in work. Many of these people are in receipt of Local Housing Allownace (LHA) to help pay the rent.

    Contrary to popular belief there are more “in work” claimants on LHA receiving partial benefit than those getting their rent paid in full. So when rents go up there is an impact on the public purse.

     

  • Buy to let lending increasing

  • Who would have thought that the Energy Bill would impact landlords

    The Second Reading of the Energy Bill was delivered on 10 May, and it contains some interesting bits for landlords, and yes, even small landlords.

    The Energy Bill is intended to be a change in the provision of energy efficiency measures to homes, and to encourage improvements to enable low carbon energy supplies.

    In the second reading new proposals included amongst other things:

    • From April 2016 landlords will not be able to refuse reasonable requests from tenants, or local authorities acting on behalf of tenants, to improve their property
    • From April 2018 the government will make it unlawful to rent out a house or business premise which has less than an “E” energy efficiency rating.

    Chris Huhne claims that

    “Our proposals provide a voice for tenants living in poorly insulated, draughty homes. The Green Deal is a win-win opportunity for landlords by removing the upfront cost of work to upgrade the property making it cheaper to run, more environmentally friendly and ultimately more attractive to rent.

    For those landlords who don’t take up the Green Deal then we will get tough so that by 2018 the poorest performing rented housing stock is brought up to a decent standard.”

    There has been talk about financial support for landlords in making these changes, but nothing specific and nothing that you could write a cheque with.

    So it looks like the pressure will be on the providers of EPC’s to make sure that rented properties do not fall below an E rating.  And who knows what will constitute a “reasonable request” from a tenant to improve a property.

    Oh, and of course any landlord receiving such a request would still be free to use section 21 to end the tenancy, wouldn’t they?

  • Paragon to start Buy to Let lending again.

    Paragon have announced that they are entering the buy-to-let lending market again.

    It seems that the new range of buy-to-let products will be targeted at professional landlord investors.  Paragon will apparently commence lending with immediate effect through a panel of brokers and will widen distribution over time. Paragon says it will also accept direct business.

    If the investment institutions are buying securitised debt again then it is quite likely that others will start to follow. Apparently Paragon have managed to secure a £200m mortgage warehouse facility from Macquarie Bank.

    Paragon have publicly stated that:

    “The facility will allow the group to recommence lending to the private rented sector, a segment of the UK housing market that has seen considerable expansion in recent years and in which the group has been a major participant. Demand from tenants for rental properties in the UK has been strong and is expected to remain buoyant going forward.”

    The fact that Paragon are back is not so special in itself, their rates were never that great.  It does however show that lenders can start to access funds again, which may come as a surprise on the back of reducing house prices.

  • BTL New Funding Facility 85% Purchase Price or 70% of Valuation

    85% Buy to Let Mortgages are back!

    A new BTL mortgage has been released which is apparently taking the market by storm. This product is ideal for investors buying property below market value as the lender will consider loans of 70% of the open market value to 85% of the purchase price!
    For Example:

    Purchase price £20000     (Max 85% = £170000)
    Market value   £250000     (Max 70% = £175000)
    Mortgage Loan £170000    (lower of the above)

    Not only that, but if you have recently purchased your property with cash, say from an [auction -> auction @ s-b-f.co.uk],  they will allow you to remortgage on the same basis even though you may have not owned the property for 6 months!

    Rates and terms are competitive, and the lender will even consider multiple flats arranged on one freehold title or houses that are let to multiple tenants!

    For more information about this please contact us and we will forward you details of the broker offering this deal.

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