Prior to the 1980’s owning homes specifically as an investment was the preserve on only a very small percentage of people, and the modern style ‘Buy-To-Let’ (BTL) mortgage, was simply not available.  The purchase of property as a means of funding a retirement income did not occur to most people, and the infrastructure of loans, advice and information was not available.

But change came with the Housing Act of 1988 when the assured shorthold tenancy system came into being. This gave potential landlords and lenders the confidence that tenants would only reside in the property for a fixed period, thereby assuring landlords of their rent for predictable periods.  This, in turn, gave lenders the confidence to allow for lending money on a property that wasn’t going to be the mortgage holders home.  The buy to let market grew at a staggering rate, however, clouds were gathering.

Until 2015, Government policy in respect of buy-to-let had been relatively easy-going, but this changed in the Budgets and Autumn Statement of 2015, when four major steps were taken to reduce the attractiveness of the investment, and prevent it running out of control.  These were:

• Restriction of tax relief on mortgage finance costs to basic rate tax only.
• Removal of 10% ‘wear and tear’ allowance.
• Introduction of additional 3% Stamp duty surcharge.
• Accelerated payment schedule for Capital Gains Tax due.

Suddenly, buy to let wasn’t such an attractive investment, and many investors decided to try elsewhere. 

But mortgage lenders realise that there is still a huge market out there and this has led to many of them offering fairly substantial reductions in rates, simply to attract investors back. The rental market is huge and those seeking rental properties outweigh the availability of homes in much of the country, so it remains something necessary. 

However, banks and building societies introduced tougher lending rules to make sure investors can afford the loan they are asking for.  Only a few years ago, landlords could usually get a mortgage if they earned enough rent to cover the mortgage repayment, but now, they must earn 25 per cent more in rent than the cost of their mortgage, and in some cases as much as 45 per cent.  This too has scared off many investors and bank are realizing that they may well have gone too far in their drive to protect against reckless investors.

So now the banks are trying to remedy the situation and the potential buy to let investor can find some excellent deals out there, particularly on fixed 5-year deals. The Post Office, Lloyds and Halifax have excellent deals of around 1.9% with a loan to value (LTV) rate of 60% (i.e. the borrower has a bigger deposit) but will also offer reasonable deals on LTV’s of up to 75%.  Many other lenders are also advertising buy to lets that have attractive rates around 2.2% fixed for five years, with subsequent years rising to around 5.25%.

If you are looking for a buy to let mortgage, or are simply interested in looking at new mortgage deals, come and talk to us at Grange Mortgages and see what we can do for you.