It pays to know the lending landscape before refinancing investment property
The latest research from Accord Mortgages concludes that first-time buyers are financing with longer-term mortgage deals. Fewer are taking two-year fixed rates, and the number of five-year fixed rate deals has doubled. Should buy-to-let landlords do the same, and what problems might you encounter in today’s buy-to-let mortgage market?
Why you might be considering remortgaging
There are two reasons why you might be considering remortgaging. It could be that you have a buy-to-let fixed rate mortgage deal about to expire (more about that in a couple of moments). It could also be that you are concerned about how high-interest rates might rise. As lending schemes (such as the Term Funding Scheme lending to banks at the base rate) close and further increases in the Bank of England base rate become more likely, lenders are likely to increase their buy-to-let mortgage rates.
Now might be a busy time for buy-to-let remortgaging
Two years ago, buy-to-let investors were faced with a dilemma. Stamp duties for investors were about to increase by 3% (April 2016). Consequently, to avoid this extra cost burden, many investors rushed through property deals.
Buy-to-let mortgages given in March 2016 jumped by almost 200% from the number given in February 2016. Many of these mortgages were two-year fixes – usually the cheapest option. It appears a busy period for mortgage brokers, as they deal with a flood of buy-to-let investors seeking to refinance their properties.
Two years ago, this would not have been a big issue. But much has changed since then. In its infinite wisdom, the government has introduced a slew of legislation that makes it tougher for property investors to finance purchases with mortgages. These same rules also apply to remortgaging. You should understand these before seeking to remortgage your buy-to-let property.
Affordability is measured differently now
There are now restrictions in place that make lending to portfolio landlords much tougher. If you own four or more properties in your investment portfolio, you must show financial information for each one when you apply to remortgage. Lenders are not allowed to simply qualify you by referring to your overall profit.
This means that you have a much higher paperwork burden. It’s going to take longer for lenders to check. In addition, if you are heavily mortgaged, it’s likely to be tougher to refinance – especially those properties that are in negative cash flow. Forget Brexit uncertainty, this is the big issue that is forcing buy-to-let landlords to consider selling properties.
Phasing out of tax relief on mortgage interest takes another lurch forward in April
The amount of tax relief you can claim on your mortgage interest reduces again in April. You will only be able to offset 50% of your mortgage interest. By 2020, this will be zero. Higher rate and additional rate taxpayers will see their rental income tax bills increase.
What should you do?
As a buy-to-let landlord considering remortgaging, you have many factors to consider, including:
- The possibility of higher interest rates
- Less willingness to lend
- Tougher lending laws
- A rush to remortgage
- The phasing out of tax relief
The sensible course of action is to act sooner rather than later. Discuss your personal circumstances with an experienced buy-to-let mortgage broker. If you’re stuck and don’t know who to contact, call one of the Ezytrac team today on +44 01522 503 717. There really is no time to waste.
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