2018 opened with fresh headaches for buy-to-let (BTL) investors. As I’ve chronicled extensively, the BTL sector has become just a shadow of its former self in the face of regulatory scrutiny and changing economic patterns, but now, landlords must face a new range of obstacles in order to refinance their mortgages and secure favorable terms.
Landlords’ present dilemma has its roots in April 2016 when the government first applied a 3% stamp duty land tax surcharge on any new purchases. Immediately before the tax new went into effect, landlords scrambled to buy new properties. In March 2016 alone, for example, landlords took out 29,300 new BTL mortgages to purchase rental properties and preempt the tax.
However, the least expensive mortgage—and thus the most financially lucrative mortgage—for most borrowers is a two-year fixed rate deal, and since that term will expire in the coming three months, many experts expect that a stampede of landlords will attempt to remortgage as a way of keeping their costs low.
Unfortunately for the landlords, a recent spate of regulatory changes has made it more difficult for them to acquire financing. Now, when so-called “portfolio landlords” who own four or more properties apply for a mortgage, the lender must evaluate the financial viability of the applicant’s entire portfolio when deciding whether or not to issue them a loan.
This is part of the reason why 70% of landlords reported challenges securing new mortgages in recent months and why 28% of them feel that their mortgage applications are more likely to be denied—and their concerns may be valid.
“It could be problematic for many landlords planning to switch to new lenders or raise more money against their property,” Aaron Strutt, a mortgage broker at Trinity Financial, explained to Financial Times. “Professional landlords are likely to find it more tricky to remortgage because of the tighter regulation.”
As a result, landlords may be unable to need to refinance their mortgages and will consequently pay higher mortgage costs that eat into their earnings. And, to make matters worse, higher tax relief on mortgage interest is fading away, which will further erode landlords’ profits. It’s hard to watch, but these changes represent yet another nail in the coffin of BTL investment.
But just because BTL investment has become more challenging doesn’t mean that it doesn’t still hold promise for savvy investors. Thanks to the F.R.E.S.H. Investment Strategy, my company is able to generate average annual returns of 7-15% for our clients. If you’d like to learn more, you can request a copy of the F.R.E.S.H. Investment Special Report by calling +44 1273 447 299, sending an email invest@avantiswealth.com, or visit our website—you’ll be glad that you did.