With thousands of landlords expected to reach the end of their fixed rate buy-to-let mortgage term over the coming months, Knight Frank Finance buy-to-let expert, Huy Le, shares his advice for securing a competitive new mortgage deal in today’s market.
Changes made in 2017 to the Prudential Regulatory Authority (PRA) rules on buy-to-let mortgages set stricter lending criteria for portfolio landlords (those with four or more mortgaged properties), which saw a wave of landlords rush to lock in 5-year fixed deals to avoid being negatively affected by the changes.
Five years on, and many of those landlords are nearing the end of their mortgage terms, meaning they are having to refinance at a time when inflation and interest rate rises are rocking the mortgage market. Read on for our expert’s top tips when searching for a new deal.
- New rates may impact your ability to borrow at the same level
Many landlords who secured low interest deals (based on a 3% notional rate offered to portfolio landlords with a limited company structure by a number of lenders at the time of the PRA rule changes), will now be faced with higher rates (upwards of 4%). This could mean you are no longer able to borrow at the same level as you had previously.
In a worst-case scenario, this may leave some with no choice but to roll on to their existing lender’s standard variable rate (SVR). SVRs are subject to the Bank of England’s base rate, which has already risen multiple times in the past several months.
There are workarounds however. A broker can conduct a portfolio review to see whether there is potential to release capital across a property portfolio. This can then be added to the equity of the property with a mortgage due for renewal, which would reduce the amount you would need to borrow, offsetting the higher rate.
Some lenders also allow what’s called ‘income top slicing’, which takes into account any additional income you may have (such as salary, so not necessarily property-related income) to make up for any mortgage affordability shortfall.
- Product swaps are a no-go for some specialist lenders
Unlike the residential mortgage market, there are a number of specialist buy-to-let lenders who will not allow product swaps. This is largely because many of these lenders are relatively new to the market and simply don’t have the products available yet.
A product swap enables you to stay with your current lender after agreeing a new rate, if you are within 3-4 months of your mortgage coming to an end. To avoid disappointment, it’s best to start this conversation as soon as possible to see what options are available with your current lender and with alternative lenders.
- A number of lenders only deal with brokers
Unlike standard residential mortgages, there are many specialist lenders who will not accept direct applications for buy-to-let mortgages, opting to only deal with intermediaries. This could limit your options so should be a consideration when you’re reviewing the market.
- Weigh up an umbrella mortgage
Portfolio landlords may be able to benefit from what’s called an umbrella mortgage. This essentially allows you to coordinate your refinancing across multiple properties in one go. The major benefit of this being that your portfolio is managed with one lender with a single monthly payment. This streamlines your repayments and is much easier to manage. However, under an umbrella mortgage, each property within the portfolio would be subject to valuation and conveyancing fees, which combined can be a significant cost.
Alternatively, a broker can individually assess each property within your portfolio and agree bespoke refinancing terms on your behalf. In a recent case, we were able to secure an interest rate for a client that was 1% less than the best available umbrella mortgage. Individually assessing properties also meant the client was able to get a free valuation and conveyancing on each property.
- It’s never too soon to start your search
The market is moving rapidly, with rates changing on a daily basis. To avoid being caught out and ensuring you can get the most competitive deal available to you, it’s never too early to reach out to a broker to discuss your options. If you’re within 6 months of your deal coming to an end, then you should be thinking about assessing your options now. If you’re outside of this window, it can still be helpful to start the conversation. With the market volatility, many brokers are working through large volumes of applications so time can be a real asset.
If you’d like to discuss refinancing options for your rental investment portfolio, speak to our specialist buy-to-let broker Huy Le, who will help you identify the best financial approach for your circumstances.