Mortgage News

[loanarranger]

Hi Boletus

Long time no communication.

Even if the Opt Out is exercised the lender will indeed seek a copy of the current EPC if it is being asked to either do a product transfer or a new remortgage application: furthermore the surveyor on carrying out the property inspection will request the same if not already provided in the submission.

A lender has a right to ensure that its financial interests are protected and as BtL's are unregulated like all commercial lending and if it is found that the property is being let without the appropriate EPC being in place it could as a last resort appoint a Receiver of Rent to manage out the asset just as they did in 2007 when concerns were raised regarding the conduct of mortgages and which in some instances showed further abuses being undertaken by the landlord. Yes it is as a last resort but one does not risks in ignoring whatever legislation is in place.

One call today from a lender confirmed that serious consideration is being made in being able to provide additional funding to assist landlords in meeting the intended EPC changes , on what basis is unknown but it is clear that lenders are increasing their focus on lending to EPC's with A,B,C. The start in 2025 is not that far off.

As I concluded in my OP I am making forum readers aware of what is going to happen and more publicity will be given as the time nears for the initial changes.

[boletus]

I was making two separate points, I should have posted them separately.

The first being landlords will opt out of the register if it is (increasingly) used against them -and not just by mortgage lenders.

The second was, which exact t&c will they use to call in the loan? After the disgusting way they behaved post 2007, I don't doubt they will use it as a first resort if it suits them.

[boletus]

On a more positive note, there is currently a 'high cost' exemption for F&G properties needing over £3500 improvements. Something similar would very likely apply for D&E's;

https://www.gov.uk/government/public...e-requirements

Also worth pointing out that many lenders are offering green further advance loans to cover such improvements.

[jpkeates]

The proposed legislation changing the requirement to be C raises the high cost exemption to £10,000.

A change of that nature would cause me to exit the business.
I'd either have to sell a property or mortgage one to be able to afford the exemption (or to get some of the properties to a C) and it just stops the business being worthwhile against other investments.
I'd have to get out early to make the most of the increase in property prices, which sucks for my tenants who I feel a little bit sick about, but I'm prepared to hold my nose and do it.

[boletus]

The proposed legislation changing the requirement to be C raises the high cost exemption to £10,000.

Do you think that cap level is likely? The consequences are quite obvious.

(On a personal note, this would be a win for me as all my rentals would quite easily get to C and it would drive out the competition. Plus I'd upgrade my F ppr to a bigger F ppr.)

[jpkeates]

Do you think that cap level is likely?

(On a personal note, all mine would quite easily get to C)

The Minimum Energy Performance of Buildings Bill which is only a start point set the limit at £20,000.
In discussions, there was a view that that figure might have to be reduced to £10,000.

That was a private members bill.
But it was the work of the MP who was murdered and the government has "indicated" that they won't let David Amess' good work go to waste.

I am not an expert on energy efficiency (and don't really know how to even start serious consideration of increasing the EPC of a building), so I'm pretty much stuck looking at the recommendations on the EPC documents of the properties.
There's nothing obvious I can realistically do for just over half of them.

And there is a degree of "you know what, it's not worth it" about it.
Faced with the idea of lots of builders, lots of expense, lots of delay, lots of jobsworth admin, I'm happy to sell up, stick the money into my other investments which are 100% passive and just forget the very small amount of work I do for a living.

I'd have a slightly less profitable portfolio, but the income would be slightly up and the growth slightly less - which, as I am approaching pensionable age, probably isn't too bad an idea.
A lot of it is tax efficient too, so it'll be a minor act of revenge on the government!

[loanarranger]

Thank you both for your constructive responses, it is evident from your views particularly as you are seasoned professionals that a significant number of less well informed investors will possibly take fright at the ramifications of the proposed changes. Although I am an investor as well as a specialist BtL broker I am taking time out to examine all of my clients properties to determine their respective vulnerabilities on this topic and to help them understand the implications with or without obtaining further funding on current loans.

[jpkeates]

I suspect the reverse will be true, to be honest.
I suspect that many (most?) landlords don't have any idea of most of the recent changes in regulations for landlords - the people who contribute to this forum are not representative of landlords in general.

The awareness of landlords I encounter generally of the EPC and EIRC requirements is frighteningly close to zero.
I still meet people "protecting" deposits in building society accounts and think a Gas Safety Certificate is a one off thing.
I've never met a landlord or agent who knows the smoke alarm regulations, full stop.

So I suspect any EPC change will go unnoticed for some time, hidden by the furore about section 21 notices - which is something that isn't an issue for almost all landlords, but about which people seem incensed.

[loanarranger]

Talking with senior individuals of several leading lenders within the Buy to Let sector it would appear that there is a general consensus that the ultra low fixed rates will become history within the next two/ three weeks, the base cost of money market rates has now reached 1.50% before lenders apply their respective premiums so if you have mortgages which may be coming out of their present incentive rates now is the time to speak with your brokers, failure could result in a “ If only I had acted earlier” even on residential mortgages the Halifax is amongst some who have announced increase in a number of products.

[loanarranger]

Further to my posting a few days ago I have read an interesting article in a Trade Publication which suggests that the current scenario might have a negative impact on capital values of property. The author is not prone to scare mongering and is highly regarded in the Financial sector.

"Mortgage rates will rise to an eight-year high by 2023 putting homes at risk of being overvalued, it has been said.

In its market prediction, Capital Economics said this would be because of constraints on mortgage affordability. It assessed that along with a 34 per cent rise in house prices since 2014, higher mortgage rates will cause the cost of repayments to account for 46 per cent of median income rather than 38 per cent.

Andrew Wishart, senior property economist at Capital Economics, also said as lender interest margins were now at their narrowest since before the 2008 financial crisis, any increases to the Bank of England’s base rate would be passed through to borrowers.

The firm revised up its prediction for the base rate, saying it now expected this to increase to two per cent by the end of next year rather than the originally proposed 1.25 per cent.
Wishart said this would be caused by continued wage and price pressures.

“We are therefore raising our forecast for the average mortgage rate on new lending from 2.5 per cent to 3.2 per cent by mid-2023, which would be the highest since 2014,” Wishart added.

This is in light of a poll of 40 economists conducted by Reuters between 7 and 11 February, which found two thirds expected the base rate to rise to 0.75 per cent at the next meeting in March

[loanarranger]

Impact of Inflation for Affordability on Residential Homeowner mortgages

I am copying an article produced by Mortgage Broker Tools which focuses on the impact on the affordability assessment for residential home loans, clearly with Inflation now predicted to rise to at least 9% by later this year this will have a significant bearing on how much can be borrowed.
Most of the main lenders use data from the ONS when making such assessments but many smaller lenders still work on the figures declared for items like Gas, Electricity Food , so it is important to have a conversation with a mortgage advisor who will have systems in place to identify those whose criteria is slightly more accommodating.
The impact of inflation on affordability

MBT Affordability Insights: The impact of inflation on affordability


Inflation is very much in the news at the moment, but just how will the ever-escalating cost of living affect mortgage affordability?

The recent surge in inflation is leading to higher prices for everyone and has stimulated the recent increase in market interest rates. This increase has already been factored into the cost of fixed rate mortgages to some extent, but swap rates are continuing to rise.

From an affordability perspective, however, it’s worth noting that lenders already stress affordability at much higher rates, so there remains a question mark over whether the current situation will have any impact on mortgage affordability.

The Bank of England is currently considering allowing lenders to stress affordability at much lower rates, but as the cost of fixed rate mortgages rises, those lenders that use five-year fixed rates to assess affordability may have to rein in how much they will lend.

The main issue, however, will be how substantial increases in the cost of living will show themselves in the ONS' figures and HSBC has already hinted that affordability could well be impacted by this. It will probably affect those clients on lower incomes first, as their net disposable income will be affected more than those on high salaries. There is already a divide between a client earning £25k per annum and one earning £100k. At the higher income you could expect, with a 15% deposit, 16 lenders that are happy to lend at five times and above. Not one lender would apply the same LTI on the lower salary. Of course, the cost of living increases will affect everybody, but those with higher net incomes will be able to cope with them much better as they have the buffer to absorb the rises.

It will be interesting over the coming weeks to see what impact these increases will actually have on the market. Of course, however in most cases, lenders will apply a different calculation behind the scenes so an accurate affordability calculator will become even more important over the coming months, especially for those brokers whose client base is not entirely made up of high earners.