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    Santander changes its criteria

    The following statement from Santander will please new applicants for their BtL products but sadly todate they will not changed their stance for existing borrowers.

    Santander is dropping a controversial clause in its buy-to-let contracts that asked landlords to increase rents by “as much as can be reasonably achieved” whenever possible.

    The change will apply to all Santander’s new buy-to-let contracts, though it will remain in existing contracts.


      Buy-to-Let lenders and Landlords "at risk" over move to five year fixes

      An excellent article has appeared in Mortgage Strategy (a trade magazine for Intermediaries.

      Buy-to-let lenders that increasingly incentivise mortgages that side-step the Prudential Regulation Authority’s new affordability rules could be putting themselves and their clients at risk, say experts.

      The rules, which came into effect on 1 January, said lenders should stress test all new BTL mortgages at a notional rate of 5.5 per cent.

      The PRA also said lenders should assume that most future borrowers would be high-rate taxpayers. This led most lenders to raise their rental income requirements to 145 per cent of mortgage interest rates from previous market norms of 125 per cent.
      But the new rules apply only to mortgages with terms of less than five years, while the market is dominated by two- and three-year fixed-rate loans.

      The most recent Moneyfacts data shows there were 390 five-year BTL fixes on the market at the beginning of February, up 20 per cent year-on-year.
      Meanwhile, the number of two-year fixes was 400, down by 3 per cent, and the number of three-year fixes was 166, down by 29 per cent.

      In addition, the average rate on five-year fixes has been cut more quickly than that for two- and three-year loans.

      The average five-year fixed rate on 1 January – the most recent data available – was 3.76 per cent, a drop of 0.39 per cent year-on-year.

      But the average two-year fix was 2.92 per cent, having dropped 0.33 per cent, and the average three-year fix was 3.74 per cent, having fallen 0.16 per cent.

      Some five-year fixes on the market use the same strict affordability checks as their shorter-term variants. However, most take a more relaxed approach, such as 140 per cent at 5.5 per cent, or 145 per cent at 4.74 per cent.

      Some lenders can stress at rates as low as 3.99 per cent.

      “The other aspect is that brokers, in their enthusiasm to support their clients’ desire for leverage, inadvertently put them into a deal that works on day one. But when it gets to year five, the tax environment has changed and rents have barely gone up.
      “So not only is the deal locked in and the client can’t readily get out without early redemption penalties, but, more importantly, they are haemorrhaging tax out of every brick in the building.”

      London & Country Mortgages associate director David Holling*worth says: “It raises the question of whether more borrowers will end up going for five years based purely on the amount they can borrow.

      “There is potential for people to say ‘I think a five-year fix is the right thing for me. Oh, look, I can borrow more. What a coincidence.’ But that longer term does give them the ability to plan better and deal with that slightly higher borrowing. That’s the role of the broker: to make sure the borrower understands both sides of the coin.”

      John Charcol senior technical director Ray Boulger says a shift towards five-year fixes makes business sense but lenders should not exploit a perceived loophole.

      He says: “It is entirely logical, and exactly what I would have expected, but lenders should not take the mickey.”
      He adds that the move could even be regarded as positive by the PRA, because longer-term fixed rates reduce risk.
      He says: “The PRA has recognised that, if people are taking a longer-term fix, that de-risks the situation.”
      Before the affordability rules came in, the PRA said it would monitor the BTL market for any “fall in underwriting standards” leading from any big shift to five-year fixes.

      PRA policy PS28/16 says: “Respondents voiced concern that this could lead to a fall in underwriting standards if firms were to move their product mix to five-year products and reduce their stress rates accordingly. The PRA will monitor the market and act accordingly if there is evidence that firms’ safety and soundness is at risk.”
      The PRA has been approached for comment.


        thanks loanarranger - i wondered why 5 year fixes were increasingly available! I have just taken one out but under a remortgage rather than new purchase.


          It is certainly true that using the revised affordability stress calculations , even before other considerations are taken into account , that clients were realising that their previous levels of funding were going to prove inadequate if they were intent on realising any release of equity and therefore the lure of 5 Year Fixed Rates have proved an attractive lure to overcome these issues.

          Whilst I readily accept that there are potential issues for both borrowers and indeed lenders who themselves may have to ultimately answer to the Prudential Regulatory Authority as to why they attempted to circumvent the rationale intended for prudential lending , I take a median line on this in so far that good quality property may over 5 years achieve a reasonable increase in the amount of rental and therefore still provide alternative funding options when the time comes to reconsider subsequent funding , indeed I would go further and suggest that if one is using a broker , they should be asked to try and avoid any lender who currently operates a reversionary rate which is clearly out of kilter with the market norm, since this is one feature which could create potential issues if the rental hasn't increased and the alternatives are few and far between what is needed to get a reasonable facility without having to stay and pay what might be an uneconomic mortgage rate.


            Tenant Demand Rising

            Landlords are seeing increased tenant demand for rental properties, according to Paragon Mortgages.
            The lender’s latest Private Rented Sector Trends report says that 94 per cent of landlords described tenant demand as stable or growing.
            Fewer than one in 30 reported a decline.
            Paragon says it has seen a rise in the proportion of its landlords who think that tenant demand is ‘growing’ or ‘booming’, up to 45 per cent from 37 per cent.

            Meanwhile fewer think that tenant demand is stable than did three months ago.

            Half of residential landlords expect tenant demand to increase over the next 12 months while only 5 per cent expect it to fall.

            The report adds Government plans to cut tax relief on buy-to-let mortgage interest and hike stamp duty hit landlord sentiment last year.

            Around 25 per cent of those surveyed in Q1 2016 had plans to sell property.
            But now Paragon says that landlord sentiment is improving, partly because they have drawn up plans to help ease the impact of the changes.

            Now around 17 per cent of landlords have plans to sell. Also, the proportion of landlords wanting to purchase buy-to-let property in Q1 2017 has grown to 13 per cent, up from a record low of 9 per cent 12 months ago.

            Paragon Mortgages managing director John Heron says: “With no material improvement in the supply of new housing against a background of strong population growth and household formation, it is no surprise that landlords are continuing to experience strong rental demand.
            “It is promising therefore that there has been some improvement in landlord buying intentions, albeit from a low base.
            “Any boost this gives to improving supply to the sector, however, needs to be balanced against the additional upward pressure that we are likely to see in rents as a result of the phased impact of the changes to the taxation of rental income.”


              Buy to Let Landlords Savvy on Changes on tax and regulatory matters

              Buy-to-let landlords are fairly well informed on tax and regulatory changes in the sector, according to a YouGov report.

              The Council of Mortgage Lenders reports that the survey of 925 mortgaged BTL landlords, conducted in December and January last, found that over two-thirds confirmed that they were aware of the change

              High-income landlords were more likely to be anticipating it, with over 80 per cent of those earning more than £100,000 per year reporting awareness of the measure.

              Roughly 30 per cent of those polled said the changes would not affect them and a CML spokesperson believes that this could actually be the case.
              “For example, if you operate your lettings through a corporate structure, fall below the threshold for paying income tax, transfer the property to a spouse who does not pay tax, or do not take advantage of mortgage interest relief in the first place, the changes would not affect you,” the spokesperson explains.
              About 70 per cent of buy-to-let landlords were aware of additional stamp duty for second and subsequent homes, which was introduced last year.

              However, only 45 per cent of the landlords sampled by YouGov were aware of the PRA requirements that new buy-to-let mortgage applications be subject to a stressed interest cover ratio (ICR) test.

              The CML says that the survey suggests that higher interest rates are not an issue that concerns landlords.

              Nearly 80 per cent of respondents said they could manage an interest rate increase of 1.5 percentage points over the next three years.

              Almost three-quarters (74 per cent) reported that it was easy or very easy to afford their mortgage repayments, indicating that most have already built in a buffer to militate against adverse conditions, says the CML.

              However, it says this buffer may later be absorbed by the increased tax bill that many will face.


                Expected SDLT surcharge profits hiked by £600m for 2016/17

                By Sam Barker 8th March 2017 4:36 pm 8th March 2017 4:36 pm

                The Government expects its stamp duty surcharge on buy-to-let properties and second homes to raise an extra £600m for the 2016/17 year.
                The Government announced a 3 per cent surcharge on buy-to-let and second properties in November 2015, but the charge was not launched until April 2016.
                Budget documents released today say: “The four month gap between announcement and implementation allowed buyers to bring forward transactions and avoid the surcharge.
                “While we allowed for this behaviour in the original costing, the extent of it was significantly underestimated.”
                The Treasury says it originally expected to raise £700m from the surcharge in 2016/17, but has now raised its expectation to £1.3bn.
                However, the Treasury says the exact figure will not be known for another three years due to taxpayers being eligible for a refund if they sell their main residence within 36 months.
                Last November the Treasury announced its first expected hike in the surcharge tax take for the 2016/17 to 2020/2021 years by 81 per cent to £6.9bn


                  The big question is ,are landlords still buying ?When the actual tax hikes hit unprepared landlords,will they decide to sell?I guess time will tell.


                    One of the Forum contributors was expressing concern over the lack of funding solutions in Northern Ireland, I am pleased to detail an announcement by Nat West for Intermediaries which might prove of assistance but the only caution is that they do not accommodate Limited Co BtL applications.

                    NatWest Intermediary Solutions will launch in Northern Ireland next month, offering mortgage brokers exactly the same proposition, lending criteria and policy as in England, Wales and Scotland.

                    NatWest said invitations to launch events will be sent to brokers in due course.


                      Tax Man Sharpens his claws

                      I thought that this article might be worth posting to illustrate the consequences of deliberately evading tax.

                      A landlord and property developer has been sentenced to two years in prison for tax evasion of £281,000 after an investigation by HM Revenue and Customs

                      HMRC found that Teddington-based Michael Charles Waddingham, 44, had not submitted tax returns for several years and had not declared rental income.

                      Waddingham had been a director of property development firm Chantry Estates, owned 17 properties and had income of more than £100,000 per year due to the directorships.

                      Waddingham admitted tax fraud on 17 January this year and was sentenced at Kingston Crown Court on 10 March after being kept in jail overnight.

                      He was sentenced to two years in jail, suspended for two years, plus an additional fine of £200,000 on top of the £281,000 tax he has already repaid.

                      He was also given 200 hours of community service and a six-month curfew between 8pm and 5am, enforced with an electronic tag.

                      In court, Waddingham admitted failing to submit any self assessment tax returns between 2008 and 2012.

                      Waddingham was also the part owner of several racehorses and is currently the director of a betting syndicate.

                      Following his arrest in 2015, HMRC forensic accountants worked with his own accountants to calculate the total income tax and capital gains tax that he owed.

                      Waddingham has six months to pay the additional £200,000 fine.

                      One thing that is for certain is that he won't be able to get a mortgage for some considerable time to come .


                        Beware if one tries to secure BtL finance by making false declarations

                        At a conference today , the audience was made aware that all BtL mortgages which complete with BM Solutions are subject to the lender making an inspection of the property within the first twelve months and if it is found that an applicant has secured a BtL facility by making a false declaration and is actually residing in the property will find themselves being summonsed for eviction at the earliest moment with all the ramifications which would follow. It seems that concerns are being expressed amongst a number of lenders that BtL mortgages have been procured as a back door and modern twist to Self Cert mortgages. indeed the message was made all the more serious in sofar as the steps which might be taken against the introducing broker.


                          Originally posted by loanarranger View Post
                          Beware if one tries to secure BtL finance by making false declarations

                          At a conference today , the audience was made aware that all BtL mortgages which complete with BM Solutions are subject to the lender making an inspection of the property within the first twelve months and if it is found that an applicant has secured a BtL facility by making a false declaration and is actually residing in the property will find themselves being summonsed for eviction
                          What does that mean? I've just searched for it and it came up with evictions in Michigan, never heard of it in England.
                          I also find the practicalities of BM solutions inspecting all rental properties hard to believe. There are far easier ways for them to investigate this.

                          A more credible deterrent would be to show some convictions involving mortgage fraud;



                            I don't see how visiting the property would be necessary.
                            BM solutions have access to someone's full credit history, and that would include their home address.
                            Even people committing mortgage fraud would find it hard to live in one place and pretend to live in another.
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).



                              I fear you've lived a quite life.... e.g.
                              I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...


                                I only communicate what was disclosed, nothing more and nothing less.

                                Many years ago as a branch manager of a BS I visited properties where the borrower was in arrears. If they weren't in I went through the rubbish bins , it's amazing the amount of confidential information which was dumped for collection.


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                                • Turning a btl to holiday home
                                  by riva
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                                • Reply to Turning a btl to holiday home
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                                • Reply to Turning a btl to holiday home
                                  by DPT57
                                  You have to pay CGT on a holiday home as well as a rental property, so it won't alter the position if you sell.
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                                • Mortgage News
                                  by loanarranger
                                  The following article has appeared in one of the Mortgage Trade journals reporting on views expressed by the Association of Mortgage Intermediaries an influential trade body within the mortgage industry.

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                                • Reply to Mortgage News
                                  by loanarranger
                                  NOT SURE WHAT IS GOING ON IN THE MORTGAGE / PROPERTY MARKET !!

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                                • Reply to Turning a btl to holiday home
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                                • Reply to Turning a btl to holiday home
                                  by landlord-man
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                                • Reply to Turning a btl to holiday home
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                                • Reply to Turning a btl to holiday home
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                                  Yes, there is. See the link below,

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                                • Reply to Turning a btl to holiday home
                                  by jpkeates
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