The BTL broker is reporting a number of new criteria changes amongst the UK’s BTL lenders which will affect funding for newly renovated properties and the deposit size now required for most loans.
New builds which many lenders also classify as properties, flats or houses built or converted in the last twelve months have been a particular cause of anxiety for buy to let lenders, and it is increasingly common for lenders to refuse to lend on this type of property altogether. Capital Home Loans are the latest organisation to decline to lend on new builds including newly converted properties.
Jonathan Moore, head of marketing at Mortgages for Business, comments: “New builds is the one area of concern in the sector, particularly in some city centres where supply is currently outstripping demand. It is essential however not to judge the whole buy to let investment proposition on the performance of new builds. Established properties and particularly HMOs and flats above commercial properties provide good long term yields. The fact that renovated flats and houses in the last twelve months are classed as a new build may be of surprise to many investors.”
The second major change is the size of deposit required. Some lenders are now asking investors to put down larger deposits by lowering the maximum loan to value (LTV) they will lend at. For example UCB Home Loans – the specialist buy to let lender of Nationwide is asking borrowers to put down a 25 per cent deposit, from the previous requirement for a 15 per cent deposit. Meanwhile Irish Permanent has lowered its maximum loan to value to 80 per cent, meaning there is a requirement for a 20 per cent deposit. Mortgage Express – the UK’s largest BTL according to Council of Mortgage Lender statistics, have also withdrawn its 90 per cent LTV BTL products.
Moore continues: “In the last five years buy-to-let lenders have lent at 85 per cent loan to value, with many lending up to 90 per cent loan to value last year. However some lenders are now introducing a maximum loan to value of 75 per cent or 80 per cent. The move is not widespread across the marketplace as yet but some lenders are making definitive moves to increase deposit requirements.”
First time buy-to-let investors are also likely to find their mortgage options decreasing. The Mortgage Works will no longer be lending to first time landlords, a stance also taken by UCB Home Loans. It remains to be seen if these changes will become the market norm and if other lenders will follow suit.
Moore concluded: “The changes cannot solely be attributed to lender worries about the credit crunch and the need to ensure loans are as prime as possible. The credit crunch has meant fewer organisations are lending because securitised lenders are having difficulties securing funds at a competitive enough rate to re-enter the market. This means the lenders remaining are receiving a higher number of applications and as result have been lending in elevated volumes. We view these measures as a short term mechanism to lessen the volume of applications there are receiving, allowing them to achieve lending volumes they are more comfortable with.”