The fact that leading mortgage lenders
have joined together to support the ARLA Buy-to-Let scheme demonstrates recognition of the
role private renting plays in achieving a balanced housing market, the mature structure of
the rental market and the need to allow residential property to be included in an
individual’s pension and investment portfolios.
Under the auspices of this initiative, there
are two important differences between Buy-to-Let mortgages and standard mortgages
available for those buying their own homes. Buy-to-Let mortgages take rents achievable
into account and some lenders expect a number of investor landlords to consider
significant gearing when building-up a mini property investment portfolio.
These two major policy changes have been
made possible due to the national network of self regulating, fully bonded ARLA member
agents who understand the legal framework that has made the rental market competitive and
who can pin-point attractive letting propositions. Also, there are low cost rental
guarantee and legal expenses insurance policies that can be taken out when experienced
letting and managing agents are involved in the selection of properties and tenants.
There is a wide choice of Buy-to-Let
mortgages designed to fit a variety of circumstances. Some are geared to the purchase of
only one property, some to the creation of a portfolio of up to five properties. Loans of
£15,000 to £1 million per investor are available for periods from five to forty-five
years and for up to 80% of valuation.
Methods of servicing the loans are equally
flexible. They include repayment of capital and interest, interest only, endowment and
pension or PEP linked, or a mix of them all. There are even mortgages that allow for
overpayment and then the use of the fund to underpay, take a payment holiday - useful for
void periods - or take the cash.
Flexibility also extends to the status of
investor landlords. Buy-to-Let mortgages are available to borrowers under full status,
self-certification and special status (no income verification); although for the last
category loans will be limited to 60% of valuation.
Most of the mortgages are available to
British expatriates, some to all nationals of the European Union and some are also
available to Americans and Canadians.
The conditions and exclusions in the
mortgage agreements throw up some interesting points that are valuable guides for the
investor landlord. These can include: No diplomatic or DSS tenants. Some diplomats, in the
past, have used their diplomatic immunity to stay in place, avoid paying rents and other
obvious contraventions of their Tenancy Agreements. Thankfully, few diplomatic missions
now allow this to happen as they need to preserve a good reputation in the rental market.
DSS tenants can be excluded due to the reputation of some local authorities for being late
with rent payments and refusing to re-house tenants without a repossession order.
Exclusions on the type of property can
include freehold flats or maisonettes - the legal implications are too horrifying to
contemplate; and not more than one kitchen or five bedrooms in case the property is used
for bedsits.
Generally, it is a condition of Buy-to-Let
mortgages that Tenancy Agreements are drawn up as Assured Shorthold Tenancies. This would
be recommended by an ARLA member anyway, except where the rental value exceeds £25,000 a
year and falls outside the provisions of the Housing Act. Then a tenancy drawn up under
contract law would apply.
However, all the lenders are prepared to
look at applications that fall outside their usual criteria and to judge them on a
case-by-case basis.
