The government is gradually reducing the amount of tax relief landlords receive. From this year they can offset 50% of their mortgage interest against their profits, it will be 25% next year and in 2020 nothing.
Like-for-like product transfers will be the only option for a number of buy-to-let investors looking to remortgage this year, managing director of Enterprise Finance Harry Landy has predicted.
A number of buy-to-let lenders now stress test mortgages against an income coverage ratio of 145% with an interest rate of 5.5% after the Bank of England started regulating the sector last year.
This, for a number of landlords, makes qualifying for a new mortgage with fresh terms more demanding than in previous years.
Harry Landy said: “There will be lots of remortgage activity this year and most of it will be picked up by product transfers.
“Because of the changes in terms of rental income calculations, I think some investors’ only option will be a like-for-like product transfer with their current lender.”
He expects the second charge market to grow steadily this year, owing to a greater awareness of what’s available, better products and cheaper rates.
Meanwhile Landy reported seeing more property developers and landlords using bridging finance regularly, and expects this market to grow from £5bn to between £5.5bn and £5.75bn this year.
He said: “There are a lot of property developer finance lenders out there that will lend you but only want to lend you £5 or £10m as a minimum and there are much smaller ones who only want to lend you £500,000.
“We’re starting to work in that gap in the market, the £1-5m space where we can either use bridging finance or development finance to help people meet their development requirements.”
