Mel Whiting of Norton Finance says landlords, especially those with one or a small number of properties in their portfolio, should review their finances well in advance of mortgages coming to term to ensure they get the best possible finance terms in place to protect investments.
Mel adds: “It’s not just the current interest rate hike that those with variable mortgages need to be mindful of, it’s how lenders are now assessing affordability, with the common practice known as the rental void.”
“We’re seeing increasingly tough terms from lenders and bottlenecks in processing times, so it’s vital to review your mortgage as soon as possible, especially if it’s a variable mortgage or close to term.”
What are voids?
This is the period when a landlord does not have a tenant paying rent. Lenders appear to be tightening their grip on this element to ensure landlords can afford their rental repayments during this period.
Lenders now require landlords to either have a separate income to cover tenant-free periods or rental income to be 120% to 140% of the mortgage payment.
In a bid to protect property investments, Norton Finance recommends the following actions:
- Check your buy-to-let property’s mortgage NOW, especially if it’s a variable rate
- Comparison sites are a good start, but remember headline rates are one thing, personal circumstances are another, and offers are made based on your personal circumstances
- Use a broker to find the best deal as they’re able to access specialist markets and deals
- Read the small print and remember that headline rates are not the same as the final cost. Hidden fees can make all the difference to your bottom line
What is “top-slicing” and how can landlords use it to overcome rental void requirements?
Mel advises the following: “As part of lending calculations, some lenders will allow a customer to cover rental repayments with their own income. This is called top-slicing. It’s a way to give lenders confidence in landlords. If landlords can cover rental voids with earned income in addition to rental income, it’s often taken into consideration by lenders when assessing buy-to-let mortgages.”
What else should landlords take into consideration?
Leave plenty of time - application processing delays are rife and set to get worse. Mortgage applications are now taking an average of three to four months thanks to staff shortages, working from home and an increased number of applications. It’s vital to leave as much time as possible.
EPC changes are coming in 2025 Rental properties currently need a minimum EPC rating of grade E, but when new legislation comes into effect, this will rise to a C, meaning landlords might need to make costly improvements to bring their properties into line.
Norton Finance says: “Landlords who plan to keep their properties might be wise to consider refinancing for these mandatory improvements now, whilst interest rates are relatively low.”
