Up to one third of BTL landlords may be forced to sell
Up to one-third of buy to let landlords may be forced to sell after failing their lender’s affordability tests, as I previously covered in other videos, when you buy a property with a buy to let mortgage, the lenders conduct something called a stress test, and this is where they test that the rent will cover the interest payment at a rate of 125 percent.
In other words if the interest payment is 100 pounds per week for example, then the rent needs to be £125 or more net, after any expenses. Recently over the last few months, many lenders have increased that to 141 percent and as many buy to let landlords are finding, their fixed deals possibly of two or less than two percent, are ending.
They have been struck with regards to qualifying for a buy to let mortgage by two different problems firstly is the falling value of their property and many buy to let landlords are mortgaged at around 75 percent loan to value, this is all well and good in a rising market, but when property begins to fall, landlords who remortgage to buy more properties and have all their properties mortgaged at 75 loan to value during high property prices can suddenly find over a few months that their loan to value rate goes from 75 percent up to 85/90% or more, meaning that they won’t qualify for any new deals and those who do have a buffer in terms of loan to value often fall down on the improved stricter stress test which has meant that many buy to let landlords have deals ending at two percent or less and they have no alternative but to go on to standard variable buy to let rates which are as high as 9.5 percent and currently that doesn’t really seem to be any light at the end of the tunnel.
There are a few buy to let deals around the five or six percent mark, but they are very strict in terms of the criteria with regards to the stress test, they have very high fees, both application fees and exit fees, so add to that the possibility which is still unclear that within two years all Buy-to-Let properties that need to be brought up to an EPC rating of a c minimum, except for those which have existing tenants in place but landlords would be short-sighted to not improve their properties to a c during the next couple of years anyway, for many reasons one because it is morally right to do so, because the better the EPC rating the cheaper the property is to run for the tenants and it is a warmer and healthier environment, number two that if this does go ahead many landlords are going to find themselves with very unhappy tenants as the reality of living with within a property with a low EPC rating will be brought home to tenants who are living in properties with an EPC of a d or an e, f are already illegal and trying to get all of the work done in one go when thousands of other landlords are also doing the same thing will end up costing more.
In that event I would recommend having a proper EPC consultation, not just an EPC but to have an energy performance consultant visit your property and actually give you a report on work that will need to be done in the most cost effective manner to bring your property up to a rating of a c, it need not be an enormous task it need not cost the Earth, for many it may very well require additional Loft insulation possibly the replacement of your boiler, possibly some internal insulation of external walls, but that’s not a definite, an improvement in heating controls trvs on all the radiators, separate zones for upstairs and downstairs, at this point the EPC rating only gives you credit for two zones no more than that, but if you have a proper consultation then you can work yourself out a route to improve your property stage by stage, to get it up to an EPC of a c, because already there are lenders who will not give buy to let mortgages on properties that are a d or lower knowing that in two years time those properties may well be illegal to rent out.
With regards to the financing side if you have any questions please feel free to forward them to me and I will ask James our in-house Financial Consultant to respond to them in our next financial property Financial Q&A and that’s all for now and I’ll see you in the next video.