Last January, the buy-to-let (BTL) market was shaken up by regulatory changes which saw providers having to implement tougher restrictions on lending criteria. This has made it harder for (prospective) landlords to qualify for a buy-to-let mortgage, with additional changes implemented at the end of September only adding to their burden.
By now, BTL borrowers should be used to the stricter affordability testing, and they will be getting used to the later-implemented portfolio landlord restrictions too. After all, they have no alternative if they want to stay landlords. But how are lenders coping?
Our latest figures show a mixed response in terms of buy-to-let rates, as the average variable rate has risen from 3.15% a year ago to 3.39% this January, while the average fixed rate has fallen by 0.16% year-on-year, from 3.38% last January to 3.22% this month. What's more, the average variable rate has now sat consistently higher than the fixed rate for the last five months.
Considering variable rates are usually lower than fixed rates due to their uncertain nature, with the average variable BTL rate having sat below the fixed rate the vast majority of the time since the financial crisis, it's clear that the recent regulatory changes are having an impact on what lenders are offering. It also means that now might be a good time to switch to a fixed BTL mortgage deal.
Aside from the Prudential Regulatory Authority's changes, the base rate increase cannot be discounted, with both the variable and fixed BTL averages up since November – though fortunately for those landlords looking to make a change, not (yet) by the full 0.25%. The variable rate is nearly there, going up by 0.18%, while the average fixed rate has only risen by 0.06% in the last three months.
Many landlords have responded to last year's changes by setting up limited companies. Research from Mortgages for Business revealed that 72% of those now operating via limited companies are using these structures for property purchases. Additional data shows that a quarter of all BTL mortgages are now offered to limited companies, making it an increasingly competitive choice.
However, this also means that not all Best Buy buy-to-let mortgages will be offered to limited companies, which might still give individual landlords an advantage. Given the costs and effort involved in setting up as a limited company, it might be a good idea to seek professional advice before you start the process.
"The PRA changes in January and subsequent tax changes in April could have damaged the intention of prospective landlords and indeed given any landlords with large portfolios some food for thought," commented moneyfacts.co.uk finance expert Rachel Springall. "Whatever your situation, it's worth taking the time to compare all the mortgage deals available on the market, not just on interest, but also on any money-saving packages. As we move into 2018, landlords would also do well to weigh up whether it's still financially viable to keep their existing portfolio, or to make a change."
Have a look at the top buy-to-let mortgages
Find out how to set up a limited company
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