Another BTL lender changes criteria ahead of new portfolio rules

By Graham Norwood

Accord Buy To Let is the latest lender to change its lending criteria for portfolio landlords with four or more investment properties, in accordance with stricter underwriting standards being introduced in the autumn.

Accord will assess the financial strength and competency of a portfolio landlord by taking into consideration their experience in the buy to let market, their full property portfolio and any outstanding mortgages along with their assets and liabilities.

All background properties must collectively meet a minimum rental calculation of 135 per cent interest coverage ratio at a stressed rate of 5.0 per cent.


This brings it in line with Bank of England Prudential Regulation Authority requirements for more thorough underwriting standards for ‘portfolio landlords’ with four or more mortgaged properties. All buy to let lenders must implement the new standards by September 30.

There will be no changes to Accord’s loan to value limits, maximum loan size or minimum income criteria, while stress rates and the number of properties accepted will remain the same.

Last week we reported on similar changes introduced by Paragon Mortgages.

https://www.lettingagenttoday.co.uk/breaking-news/2017/7/another-btl-lender-changes-criteria-ahead-of-new-portfolio-rules

Bank of England warns it will go after firms looking to mask risks

By Jill Treanor

Some lenders are taking more risks and are seeking to ‘circumvent the spirit’ of the regulations, says deputy governor

The Bank of England deputy governor set out a number of products facing scrutiny from regulators, including an increase in mortgage terms from 25 to 35 years. Photograph: Martin Godwin for the Guardian

The Bank of England has issued a warning to major lenders not to repeat their antics of the years before the 2007 credit crisis when they deployed complex strategies to mask the financial risks they were running.

Sam Woods, one of the Bank’s deputy governors, also said some lenders were starting to take more risks and set out a number of products facing scrutiny from regulators, including an increase in mortgage terms from 25 to 35 years.


Referencing the famous phrase of William McChesney Martin, a chairman of the US Federal Reserve in the 1950s, Woods said the Bank is on alert for a “return to the punchbowl”.

“Across the wider market, we are observing – not from all firms, but definitely from a few– a shift in credit risk appetite as lenders compete with each other to find ways of widening the pool of available borrowers, increasing the size of loans available to them, or reducing the credit premium charged for inherently more risky loans,” he said.

Woods’s remarks were initially prepared for delivery in May to the Building Societies Association but delayed because of the purdah period imposed once the general election was called. They were published, in an updated form, on Monday.

In a warning to banks and building societies Woods said the Bank had already found behaviour from lenders that “might meet the letter of the regulation” but is “designed to circumvent the spirit”.

Banks would always innovate faster than the regulator could update its rules, he said. “However, some innovation is pure regulatory arbitrage – that is, action taken by firms to reduce specific regulatory requirements without any commensurate reduction in their risk,” said Woods.

“This is why we need well-informed rule-makers and alert supervisors, who together can smell when something is off and decide what to do about it,” Woods added.

“Firms ... should be prepared to defend their compliance, not only with the letter of the regulation, but also with our principles of prudence, effective risk management and adequacy of financial resources at all times.”

He outlined a number of practices that the regulator had uncovered, including borrowing that did not appear on banks’ balance sheets – through the use of so-called off-balance sheet vehicles. He also highlighted technicalities around the way banks handle assets that are easy to sell in a crisis – so-called liquid assets – and the way insurance products could be amended to bolster profits.

The 2007 credit crunch was characterised by an alphabet soup of acronyms for complex financial vehicles and products used by banks such as CDOs (collateralised debt obligations) and SIVs (structured investment vehicles).

With regards to lending, Woods’ remarks were published a week after the Bank of revealed it was stepped up its scrutiny of lenders providing finance on credit cards, personal loans and to buy cars.

Such lending is not typically conducted by building societies, which are more usually active in the mortgage market. Here, he said, the Bank had noted that mortgage terms were extending from 25 year to 35 years – or even longer. While that makes monthly repayments lower it means the total interest is higher, with final amounts due when the customer may have retired.

“That should not be a problem if lenders can be confident about the availability of such retirement income, or about the scope for the borrower to downsize and use the sale proceeds to pay off the balance of the loan,” he said.

He noted that building society profit margins were coming under pressure, often because they were keeping savings rates higher to keep members happy.

“Squeezed margins at building societies are exacerbated when pitted against the mutual pricing strategy many have adopted to protect members in an era of low rates – and so, building societies seek to source new lending that earns higher than average rates,” said Woods. “This combination of circumstances is what led a number of societies to broaden their lending appetites in the mid-2000s.”

More than 60 societies attended the BSA conference in 2004 compared with 44 this year. Societies “ought to be well aware of the warning signs, but I’m conscious that corporate memories can be shed surprisingly fast,” Woods said.

https://www.theguardian.com/business/2017/jul/10/bank-of-england-risk-lenders-sam-woods

Accord Buy to Let’s ‘competitive mortgages’ now available to consumers

By Marc Da Silva

Accord Buy to Let, the intermediary-only lender, has announced that it is now accepting applications from borrowers classed as consumers: non-professional landlords who plan to let out a single property where they or their relatives have previously lived.

The lender, which is part of Yorkshire Building Society Group, has opted to make its full buy-to-let mortgage range available to consumer buy-to-let borrowers in response to growing demand for its products, and following the implementation of the European Mortgage Credit Directive.

Chris Maggs, Accord Buy To Let’s commercial manager, said: “We’re pleased to be lending in this market.

“Offering mortgages to landlords that are classified as consumers, in addition to those landlords that specifically invested in property for business purposes, means that we are providing brokers with a more comprehensive buy-to-let offering.

“It also offers homeowners who become ‘accidental landlords’ a wider choice of competitive mortgages to continue to maintain their property even after they or their family have stopped living there.


“Brokers can get in touch with our knowledgeable business development team, or refer to our handy online decision tree to determine whether a case falls under consumer buy-to-let lending.”

https://www.landlordtoday.co.uk/breaking-news/2017/4/accord-buy-to-lets-competitive-mortgages-are-now-available-to-consumers

Mortgage lender launches cut-rate deals

By Marc Da Silva

With interest rates at a record low level, competition among mortgage providers, somewhat unsurprisingly, continues to hot up, with lenders shaving percentage points off their buy-to-let mortgage rates in an effort to entice buy-to-let landlords acquiring new properties through their doors.

Pepper Homeloans has become the latest lender to improve its buy-to-let offering by expanding its product range and slashing rates by up to 0.5%.

The specialist lender has strengthened its range of buy-to-let mortgage products by launching a two-year limited deal with rates starting from 3.38% across its near prime range, while its five-year fixed rates now start from 4.18%.

Rob Barnard, sales director of Pepper Homeloans, said: “We are delighted to be making these enhancements to our buy-to-let range. Brokers can easily submit a decision in principle online and will be assured of a fast response.”


Pepper announced enhancements to its residential mortgage range earlier this month, which included lower rates and new 30-month, three and five-year fixes.

https://www.landlordtoday.co.uk/breaking-news/2017/2/mortgage-lender-launches-cut-rate-deals

Buy to let pleads to be kept at centre of White Paper's rental plans

By Graham Wood
February 07, 2017

The Residential Landlords Association has made a last-minute plea for buy to let investors to remain central to the government’s plans for the private rental sector, set to be outlined in the long-awaited Housing White Paper this morning.

Leaks to newspapers in recent days have suggsted that the White Paper will announce incentives for greater institutional investment - the Build To Rent revolution.

This is despite the RLA citing the London School of Economics as warning that “even if institutional investors enthusiastically enter the market, individual landlords will remain dominant – as they are across Europe” and a House of Lords committee report saying the institutional sector had so far “achieved little”.

Instead the RLA wants the White Paper to allow private landlords to expand their investment to provide the extra housing urgently required.

“Whilst we welcome efforts to boost the supply of homes to rent, this will not be achieved through a single minded focus on corporate investment.  The very fact that a renewed push is being made for such investment is a sign that previous efforts have failed” insists RLA chairman Alan Ward.

“Any plan for the rental sector that does not provide equal support and encouragement for the vast majority of individuals making up the country’s landlord population is doomed to failure” he adds.


“Instead the government should look again at the tax rises imposed by the previous Chancellor on landlords which will only act as a disincentive for the hundreds of thousands of smaller landlords to get more properties on the rental market.”

The RLA says ministers want to encourage longer tenancies in the rental market yet official government data shows that the average length of time a tenant in the private rented sector has been in their home is now four years.

With research showing that 25 per cent of smaller landlords are prevented from offering tenancies longer than a year by their mortgage lender or insurer, the RLA is urging the government to take action to encourage mortgage lenders and insurers to allow landlords to offer longer tenancies.

https://www.lettingagenttoday.co.uk/breaking-news/2017/2/buy-to-let-pleads-to-be-kept-at-centre-of-white-papers-rental-plans

Private sector rents rise in line with wages

By Marc Da Silva
January 20, 2017

Private rental price increases have accelerated modestly, in line with earnings across England, according to a new report from the National Audit Office.

But while the cost of renting in the private sector has largely followed changes in earnings, rents in the social sector have increased faster than wages, the figures show.

The exception to this is in London, where rents are rising much faster as a consequence of the supply-demand imbalance in the capital.

In its analysis on the state of the housing market yesterday, the Royal Institution of Chartered Surveyors warned that “rents are being squeezed higher due to demand consistently running ahead of supply”.

Commenting, RLA policy director, David Smith, said: “Today’s findings from the National Audit Office will surprise those who have falsely sought to argue that landlords are profiteering. The question must surely now be why the heavily subsidised social rented sector is seeing its rents increasing so much more than earnings.

“We cannot afford to be complacent. Forthcoming changes to mortgage interest relief, due to be rolled out from April will serve only to place upwards pressure on market rents, stifling the supply of homes to rent and reducing choice for tenants.


“In the end, those who will suffer will be tenants unable to save for a house of their own, and the many vulnerable people, such as the homeless, who rely so much on the sector to provide a home for them.”

https://www.landlordtoday.co.uk/breaking-news/2017/1/private-sector-rents-rise-in-line-with-wages

The best (and worst) postcodes for buy-to-let returns unveiled

By Marc Da Silva
January 16, 2017

The key to a successful long-term buy-to-let investment is securing solid rental yields for income returns and the potential for capital growth from increasing property prices over time.

Buy-to-let landlords will be keen to improve their returns, to help offset additional stamp duty charges for acquiring properties and a squeeze on mortgage interest relief.

Fresh data from Aspen Woolf has identified the latest buy-to-let ‘hotspots’ which include Manchester, Cardiff, Leeds and Liverpool.

Oliver Ramsden, founder and director of Aspen Woolf, said: “The UK property market stayed strong in 2016 despite a turbulent year, with confidence remaining in the buy-to-let sector in particular.

Rental growth increased but at a slower rate than 2015; this was to be expected however, notably due to the unexpected Brexit result stalling market movement for a short period.

“House prices should start to increase above the 3% mark again in 2017, especially in buy-to-let ‘hotspots’ which we have identified.”

At the other end of the spectrum, in comparison to the rest of the UK, London’s letting market weakened last year, with rents peaking in April 2016.


“We forecast this trend to continue, especially within prime central London hence have identified West Central London, or the WC postcode, as the top UK location to avoid in 2017,” said Ramsden.

https://www.landlordtoday.co.uk/breaking-news/2017/1/the-best-and-worst-postcodes-for-buy-to-let-returns-unveiled

Renting may be financially more worthwhile than previously thought

By Graham Wood
January 12, 2017

New research claims that the financial benefits of renting rather than owning may have been under-rated.

A financial researcher at the University of Stirling, Dr Isaac Tabner, says the cost of renting includes many additional expenses incurred by home owners, such as building insurance and property maintenance.

He says a simple comparison between rent ands mortgage costs overlooks these additional hidden costs and can lead to an overestimate of the financial benefits of owning versus renting.

The new research, published in the International Review of Financial Analysis, provides a detailed explanation of how costs of renting versus buying a home can be compared, while taking tenants’ and owners’ own personal circumstances and macro-economic conditions into account.


In reviewing transaction costs, rental yields, opportunity costs, inflation and the length of time owning a home, the study also shows that – during periods of deflation or zero inflation – people who rent are typically better-off financially than those who own their home.

Even when economic conditions are favourable, households may need to own their home for between five and 10 years before returns from the rent they are no longer paying are sufficient to compensate for the high transaction costs of buying. However, increases in inflation and rent can tip the balance in favour of ownership.

“It is often thought that buying a house makes more financial sense in the long run: however, renting is frequently more worthwhile than buying for financially-constrained households, as well as households likely to relocate within 10 years” explains Tabner.

“As well as a reduced ability to recover transaction costs, households relocating within a few years face a higher risk that medium-term prices will move against them, thus reducing or eliminating their equity, while financially-constrained households face much higher mortgage costs” he adds.

The study shows that, for someone purchasing a home with no mortgage, deflation of just one per cent per year can result in an equivalent loss of half the present purchase value of their home if they hold it for 45 years. By contrast, inflation – including wages – of two per cent per year, results in the same individual gaining 50 per cent of the present purchase value of their home if held for around 28 years.

https://www.lettingagenttoday.co.uk/breaking-news/2017/1/renting-may-be-financially-more-worthwhile-than-previously-thought

Buy-To-Let lenders to face tougher checks

UK mortgage lenders are now expected to restrict lending to buy-to-let borrowers following the Mortgage Works’ decision to limit the amount landlord investors can borrow.

The Mortgage Works, the buy-to-let division of Nationwide, announced late last week that it will, from 11 May, require landlords to receive significantly more rental income relative to the costs of their mortgage than is currently the case.

The Mortgage Works has tightened its rental cover requirement – the amount a landlord is required take in rent compared to the cost of the mortgage repayments – from 125% to 145%.

The change means that Nationwide will no longer lend to landlords with a 20% deposit, and will only lend to those with a minimum of 25%, provided the new rental cover criteria are met.

The changes are in response to the Bank of England's announcement in March that mortgage lenders would face more stringent regulations when calculating mortgages for buy-to-let landlords.

Many experts now forecast that property investors will require a minimum 40% deposit when acquiring property as a consequence of these tougher rules.

David Whittaker, managing director at broker Mortgages for Business, said that he was not surprised to see that lenders are starting to increase their income cover ratios for individual borrowers.

He commented: “As one of the biggest mainstream buy-to-let providers, The Mortgage Works is taking the lead and demonstrating to the market and the regulators that it truly understands the forthcoming tax relief changes. It will be interesting to see how other providers react.

“I anticipate a few will be making similar preparation, some will wait until the outcomes of CP11/16 [Recovery and Resolution Plans] are known and others will bury their heads in the sand. ICRs [interest coverage ratio] on products for limited companies will remain generally the same as they are now because these borrowing vehicles will not be subject to the new tax relief restrictions. Indeed, it will be the lenders with products in this category who will be the likely winners out of this in the long term.”

Some experts believe that in low-yield areas like London, landlords with less than 40% deposits will struggle to borrow in future.

Andrew Montlake, of broker Coreco, said: “In London where yields are down to 2% or 3% you’re only going to be able to get a 60% mortgage from now on. Landlords are going to have to put more cash in.

“It's likely that these costs will be passed onto tenants, so the cost of renting will go up, too.”

https://www.landlordtoday.co.uk/breaking-news/2016/5/buy-to-let-lenders-to-face-tougher-checks