More and more landlords are looking at alternatives

There is yet more evidence that an increasing number of buy to let investors are setting up companies to offset the worst impact of changes to mortgage interest tax relief.

The latest Mortgages for Business “Limited Company Buy to Let Index” reveals there was a surge in the proportion of applications for buy to let properties made by landlords using limited companies at the end of 2019.

Over the past 18 months, landlords’ behaviour has changed as the sector comes to terms with the new tax regime. The increased use of Limited Company structures includes both new purchases and transfers - that is, purchases made by landlords selling their personally owned property to their limited company.

The proportion of re-mortgage applications made via Limited Company structures also increased substantially of the last 12 months and figures show this trend is continuing into 2020.

Landlords should be aware

Landlords are being urged to seek advice before taking a mortgage holiday through concerns many are leaping into the ‘break’ without considering the full consequences.

Taking the three-month break from repayments could impact current and future applications. What’s more, lenders are and will reconsidering applications when a landlord had asked for a repayment holiday on their existing loans.

Lenders expect landlords to be able to cover void periods under normal circumstances – where a property is empty, and a landlord isn’t getting any rent – so they won’t take kindly to landlords trying to take advantage of them just to build up some cash reserves.

As an example, one borrower with three live cases with their lender approached them for repayment holidays on another, existing loan. The lender immediately cancelled all three live cases.

Renting demand increases

Across the UK by region and price band, demand for rented homes has surged by 30% since 14 April 2020, suggesting the rental market is regaining momentum, according to the latest Rental Market Report.

This follows an initial decline of 57% in the two weeks to 30 March, driven by the coronavirus crisis. In the same period, the sales market was hit by a 70% decline in buyer demand.

There has been no mass withdrawal of properties listed to let, as the total number of properties listed as available remains broadly unchanged, down just 3% compared to 1 March.

The research also found that the number of moves per year in the lettings market is expected to drop by 25% in 2020 compared to 2019.

Rental supply has increased ahead of the lockdown as landlords switched from the short to the long-let market, but growth in new supply has since slowed.

Annual rental growth in the UK stands at +2.4%, up from +1.5% in March 2019; rental growth is expected to moderate over the rest of the year but remain in positive territory.

Buy-to-let

There is no doubt the developments in the mortgage market in response to the coronavirus crisis are moving at a frenetic pace. Helping clients is crucial for everyone in the industry currently, so we are keeping on top of all of these updates to help navigate the best options for your individual circumstances at this time.

We have also seen most of the buy-to-let lenders now set up for payment holiday requests, with one of the largest in Barclays having built a system from scratch to help process these.

This helps to provide another option for landlords where your tenants cannot make their rent payments due to Covid-19 related financial problems

One bit of advice we want to ensure clients are aware of and to stress is that by requesting a mortgage payment holiday, you are essentially saying you are in financial difficulty.

This could then affect your ability to acquire other mortgage options during this mortgage payment holiday period, both for a rate switch with the existing lender in some instances, or when looking to re-mortgage to a new lender.