The buy-to-let sector suffered a series of blows in 2016, from the stamp duty surcharge introduced in April to the ban on letting agent fees and the gradual phasing out of mortgage interest tax relief from April 2017. With many Landlords now expected to raise rents to counter climbing costs, the Post Office is helping to offset those expense from the off with a new range of buy-to-let mortgage deals.

The four products announced this week are designed to offer great rates and keep initial expenses down for the cost-conscious property investor, whether they are first-time landlords or someone aspiring to one or two investment properties.

The market-leading rates include:

60% LTV three-year fixed rate at 2.28% (£995 fee)
70% LTV two-year fixed rate at 1.93% (£995 fee)
70% LTV five-year fixed rate at 2.78% (£995 fee)
75% LTV two-year fixed rate at 1.98% (£995 fee)

Post Office Money will also offer no fee B2L products as well as the option of assistance with valuation and legal fees, for those who want to keep upfront costs down even further.

Owen Woodley, Managing Director Post Office Money, says: “Property is still an attractive investment for many; however factors such as the increased stamp duty tax on additional properties mean people are shopping around for the best deal to keep costs down. We are continuing to improve our mortgage offering across the board to help customers make their buy to let aspirations a reality. We know that many of our BTL customers will be first time landlords and as a result, we have aimed our new market-leading deals at the ‘cost conscious aspirational investor’.”

Higher loan rates loom for landlords

14th November 2016

Landlords with more than four buy-to-let properties will face higher loan rates next year, experts warn, as the sector continues to feel the squeeze.

The UK buy-to-let market has been placed under growing pressure from the government in the last year. With a stamp duty surcharge on additional property purchases introduced in April 2016 and mortgage interest tax relief to be incrementally phased out from April 2017, landlords will eventually have to pay tax on their turnover rather than their profit, as well as higher stamp duty, leaving many investors with much smaller returns and some potentially even making a loss.

Now, new affordability rules are expected to hike loan rates for some landlords as well. Regulations from the Bank of England, which will come into force from September 2017, will require lenders offering a buy-to-let loan to anyone with four or more buy-to-let properties to assess the viability of the loan in more depth than before, taking into account existing mortgages, other costs and, indeed, the impact of the mortgage tax relief change. That means that, rather than evaluate a buy-to-let mortgage application based on the price and rental income of the property in question, portfolio landlords will have to provide lenders with income and mortgage information for all of their existing properties.

“Lenders will have to spend significantly more time underwriting the application because they will have to look at the landlord’s total portfolio and assess their asset and liability situation in the whole,” Ray Boulger, technical manager at broker John Charcol,” told the Financial Times.

With fewer lenders and less competition, the changes are expected to prompt higher rates. Landlords “might have to pay a quarter or half percentage point more”, Boulger added.

While the rules are not active for some time, Boulger told This Is Money that most lenders are “likely to introduce them before” September next year.

Landlords, meanwhile, are showing signs of already being cautious in their rental increases, as they balance meeting looming new costs with wider market conditions.

Rents across the UK rose by an annual average of 3 per cent in October, according to the latest HomeLet Rental Index. A tenant signing up for a new tenancy during October agreed to pay an average monthly rent of £902, slightly above October 2015’s average of £875.

This is the second month in a row in which the Homelet index rose 3 per cent, which the firm suggests is an indication that rental market inflation has started to slow. Indeed, in March 2016, rents were rising at a faster average annual rate of 4.5 per cent.

Martin Totty, HomeLet’s Chief Executive Officer, comments: “Landlords are aware of the need to find a balance between what tenants can afford and the returns they require on their investment. While many landlords are facing higher costs themselves, including the impact of higher stamp duty on their property purchases since April, our data suggests that they have so far been cautious against a more uncertain economic environment. We know wage growth has lagged rental price inflation and it could be that we are approaching an affordability ceiling whereby landlords can’t attract tenants able to afford higher rents.”

“It’s also a fact the average duration of a tenancy is increasing and our data suggests this has now increased to twenty-eight months on average: that might suggest landlords are valuing the security of a reliable tenant and accommodating their wish to remain in the property for longer,” Totty adds.