The proportion of a property value that you can raise on a mortgage is known as the ‘loan to value’ or ‘LTV’. For those looking to buy or remortgage a buy to let property, the maximum LTVs available are lower than those for normal residential mortgages.
The main reason for this is the substantial losses made by lenders on their buy to let lending resulting from the credit squeeze and downturn in house prices. A second reason is the volatility of house prices at the moment, and the possibility that mortgages buy to let properties will fall in value. The lenders are now keen to see a greater stake from the property investor and for most a deposit of at least 20% is required. With larger deposits, the lenders are more secure and can make the interest rates more favourable and the set up fees smaller. Whilst high LTV’s are available in the market, the set up fees are very high.
There is another appeal for low LTV’s to lenders. In the past a lot of new buy to let mortgage funding was made by lenders selling on large packages of existing buy to let mortgage assets, releasing cash to lend again. This is known as ‘securitisation’. However this bubble burst following problems in the American mortgage market involving repossessions and losses, which resulted in a high number of defaulting borrowers. These securitised assets therefore became bundles of ‘bad debts’ or more commonly, ‘toxic debt’. This had a knock on effect in the UK as many lenders had either bought such debts or were afraid to do so again – and almost led to the collapse of Northern Rock, who relied heavily on this type of funding. These problems created the part of the credit squeeze affecting mortgage borrowing.
If the securitisation market is ever to return with any volume in the UK, it will be the packages of safer low LTV loans that are the most attractive to the banks and large corporation buyers.
A number of previous buy to let mortgage lenders are now returning to the market and others have expressed a desire to move in as new lenders. With a healthy rental demand, which has grown due to a lack of funding for residential mortgages, we can expect to see more and more properties being purchased for the rental market.
With attractively priced properties moving fairly quickly the services of a competent and experienced mortgage broker such as Andy Wilson can prove invaluable in sourcing and securing the best buy to let mortgage. They will have access to up to the minute details of the latest and best deals available, and can perform ‘total cost’ calculations to see which would prove least expensive for your new loan.
Note: the Financial Conduct Authority do not regulate most buy to let mortgages. The buy to let mortgages which do come under FCA regulation are those where more than 40% of the property is used or will be used by the borrower or a member of the borrower’s immediate family. Buy To Let is regarded as a commercial activity and you will be regarded as a businessperson. You will therefore not have the same borrower protection that is available to residential borrowers.
For more information regarding your buy to let options, please use the ‘Contact Andy’ form at the bottom of the page.