by Ying Tan, managing director, The Buy-to-let Business
are typically higher than for family rented and it’s why I got into property in the first place. Understanding these niches is key for lenders to do better.
Wish list It has to be said that at the top
of any landlord’s wish list from lenders right now is loan to value – particularly at the higher end of the scale. It’s a long term game and you want to leverage as high as you can so you can extract as much money as you can to re-invest. Gearing allows you to buy five properties with £100,000 and if that portfolio of five £100,000 properties goes up 5%, then you have £500,000 going up 5% as opposed to buying a single £100,000 property going up 5%. The power of gearing means the majority of landlords prefer higher loan to values and they’ve struggled with that in the past couple of years because LTVs have gone from 85-90% to around 75%. Also as a landlord you’re not worried about price falls as you only lose money when you sell the property and as buy-to-let is a longer term investment, it’s much more about the income side of the equation. As long as the rental demand is there, which it is, you’re servicing a debt which is why as a landlord when you’re expanding, you’re looking for a low cost. The way you manage that cost is through using fixed rates or if you’re happy with the interest rates, then perhaps gambling on a tracker.
Moving the goal posts The biggest concern a landlord has is when lenders
“At the top of any landlord’s wish list from lenders right now is loan to value – particularly at the higher end of the scale. It’s a long- term game and you want to leverage as high as you can so you can extract as much money as you can to re-invest.”
change the goal posts. The setup costs of a mortgage are quite high; you have the valuation fee, you have to pay a broker fee if you’re using a broker and often you’ll have to pay some upfront solicitor costs. The net spend before you’ve done anything could be £1,000. You go through a decision in principle with a lender or mortgage broker and it’s all fine. For the goalposts to change after the lender has passed the decision in principle and subsequently refuse to lend for whatever reason, is a big concern. You’ve spent money to come out with nothing. However not all lenders present the same risk to landlords in this sense. As a broker I use lenders I know have robust systems to work with. It means I’m able to validate work and ensure that a client’s good for their money before he spends on credit checks. There are always risks that the credit will deteriorate at the point of application to the point of completion. To be fair to lenders pulling out at the last minute doesn’t happen often. Generally if you pass a decision in
principle, as long as your property value is up, you know you’re going to get your funding. Whether the property value is up or not is to a certain degree down to a landlord doing their due diligence. If you know you can only do 75% LTV, you have to be realistic about your property values using the various tools available such as Rightmove, Zoopla and the Land Registry to make sure you have strong comparables yourself, should there be any down-valuations.
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