There’s no doubt about it, the buy-to-let market has been hit hard by the coronavirus crisis. This includes the withdrawal of mortgage products and mortgage applications being stopped midway. Interest rates have increased and mortgage payments are being affected by tenants’ inabilities to pay the rent. As such, this is a worrying time for buy-to-let landlords.
Whether you’re a prospective buy-to-let landlord or already have a buy-to-let mortgage, here’s the situation so far and what you can do to improve your circumstances.
New buy-to-let mortgages
Despite such an optimistic outlook for the buy-to-let market at the beginning of the year, the coronavirus crisis has quickly put a negative spin on things. Products have been withdrawn from the market, restrictions have been placed on lending criteria and lenders have increased their margins.
Over 1,300 buy-to-let mortgage products have been withdrawn from the market since the beginning of March. Some lenders have even stopped offering buy-to-let products altogether. Coping with fewer staff members and handling the large volume of mortgage payment holiday requests, many lenders are currently concentrating on existing clients rather than processing new applications. For those still dealing with new applications, the lending requirements have changed in response to concerns about falling house prices and tenants’ inabilities to pay the rent.
These changes have also clashed with the new tax rules for buy-to-let landlords. Tax relief used to be offered on mortgage interest. With this relief, you could lower your tax bill by deducting your mortgage expenses from the rental revenue. Since 6th April, however, this relief has been withdrawn.
Previously, you would have been able to take advantage of an 85% loan-to-value (LTV) mortgage. Now, however, many lenders have changed this to 75% LTV with some even stipulating 60% LTV. This severely restricts your borrowing options until you can come up with a higher deposit.
The plus side to this – when you’ve accumulated a higher deposit amount – is that a lower LTV mortgage is considered less of a risk. It is easier to process as your lender will be more likely to do a remote valuation. This means your application can still be processed rather than having to wait until the lockdown measures have been lifted for a surveyor to physically visit the property.
When the Bank of England reduced the base rate again in March, you might have been hoping to gain favourable mortgage rates. Unfortunately, however, the opposite seems to be the case. Many lenders withdrew tracker buy-to-let mortgages, which tracked the Bank of England’s base rate. And many have widened their margins to counteract the risk of reduced property prices and tenants being unable to pay their rent. As a result, the increased interest rates mean it will more than likely cost more for you to borrow at this time.
There have been positive signs of some lenders starting to relend products that were originally withdrawn at the start of this crisis. Also, despite the large reduction in most buy-to-let mortgage products, there has been a slight increase in 2-year and 5-year fixed rate buy-to-let products with a 60% LTV mortgage.
Existing buy-to-let mortgages
As mentioned above, benefits from the Bank of England’s low base rate haven’t been passed on to buy-to-let mortgages. On the contrary, many lenders have widened their margins. You may be hoping to reduce your monthly mortgage repayments to help relieve some of the financial pressure during this time. If so, it’s advisable for you to remortgage quickly as interest rates on buy-to-let mortgage deals are increasing.
Mortgage payment holiday
For a short-term solution, you might prefer to consider a mortgage payment holiday. Just as you might be struggling financially as a result of the coronavirus lockdown, your tenants are more than likely struggling too. They may have contacted you to express concern about paying the monthly rent. To help relieve the financial pressure on both sides, the government has introduced a 3-month mortgage payment holiday.
This defers your mortgage payments for 3 months, giving you breathing space during this lockdown period. Once your mortgage payment holiday has begun, it is assumed that you, in turn, will provide relief from the rental payments for your tenants.
You might not have gone ahead with this as you’re worried about it affecting your credit rating. However, an ‘emergency payment freeze’ has been confirmed by the credit agencies Equifax, TransUnion and Experian. This protects your credit score so that it will remain the same if you decide to opt for a 3-month payment holiday.
To qualify, you need to be up-to-date with your mortgage payments. You also need to confirm that your tenants are finding it hard to pay their rent. Many lenders have now provided the facility for online payment holiday applications. Therefore, check your lender’s website first rather than trying to get through to them on the phone. Lenders are doing their best to process mortgage payment holidays as quickly as possible. However, please bear in mind that they currently have a huge volume of requests to process.
Are you already in arrears?
Don’t worry if you are already in arrears and need help during this lockdown period. Speak to your lender who will assess your circumstances and offer help that best suits your situation.
Is your property empty?
If you’ve been financially affected due to the coronavirus crisis, you can apply for a 3-month mortgage payment holiday. This is regardless of whether your property is currently empty or you have tenants but they are unable to pay their rent.
Increased rental demand and extra help from the government
Despite a dramatic fall in rental property demand from mid to late March, demand suddenly increased by 30% in the first half of April. This is good news if you have been worried about the risk of your property being empty.
What’s more, the government’s Coronavirus Job Retention Scheme went live on 20th April. This means you have some reassurance that your tenants will be able to maintain their rental payments. This greatly helps to relieve the financial pressure placed on you and them by the COVID-19 lockdown.