Buy to Let Mortgages 2017 Vincent Burch, Sole Director - Vincent - - PowerPoint PPT Presentation

Buy to Let Mortgages 2017

Vincent Burch, Sole Director - Vincent Burch Ltd Jason Wilde, Regional Sales Manager - Paragon Bank

Paragon Major Lender for Complex BTL Main BTL changes in 2017:

Jason Wilde from Paragon Bank

 Tax changes, case studies  PRA restrictions on lending,  Changes in the banks lending trends  Landlord opportunities

Vincent Burch – Mortgage Broker, Norwich

 Alternative Finance  PRA Summary  Qualified Advice

Choose a title page from the options

Regional Sales Managers

Opportunities in the Private Rental

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Agenda

• What changes have we seen recently?
• Minimum affordability standards
• Specialist underwriting for portfolio landlords
• Landlord strategies
• Rent increases
• Maximising attractiveness of your property
• Houses in multiple occupation (HMOs)
• Limited company
• Questions

Adapt and thrive

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What changes have we seen recently?

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How do changes to tax relief impact landlords?

Victoria Higher rate tax payer Tax relief almost halved Intended result

Victoria earns £55,000 income from

• ther sources.

Victoria has two buy-to-let properties, generating rent - net of costs before interest - of £15,000. Victoria bought her buy-to-let properties for £275,000, using cash and buy-to-let loans

• f £200,000. The interest rate on her

loans is 4.5% resulting in annual interest

• f £9,000.

Tax on property income Current - £2,400 Proposed - £4,200

Sarah earns £40,000 income from other

• sources. She has two children and

receives child benefit of £1,823. Sarah has two buy-to-let properties, generating rent - net of costs before interest - of £20,000. Sarah bought her buy-to-let properties for £360,000, using cash and buy-to-let loans

• f £310,000. The interest rate on her

loans is 4.5%, resulting in annual interest

• f £14,000.

Tax on property income Current - £1,923 Proposed - £6,546 Sarah

Basic rate tax payer Moved into higher rate tax Child benefit clawed back

Unexpected result

Ian earns £45,000 income from

• ther sources.

He has a large property portfolio, generating rent - net of costs before interest - of £200,000. Ian’s buy-to-let properties are worth £4.6m million and are financed by £3.8 million

• f buy-to-let loans at an interest rate of

4.75%, resulting in an annual interest bill of £180,000.

Tax on property income Current - £8,000 Proposed - £52,990 Ian

Higher rate tax payer Moved into additional rate tax Personal allowance withdrawn

Unexpected result

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Specialist underwriting for portfolio landlords

• Second stage of PRA changes to be applied from 30 September 2017
• Portfolio landlords are defined as a professional landlord who has four or more

mortgaged buy-to-let properties

• Lenders are expected to apply a specialist underwriting process in these cases,

including requests for:

• Accounts or tax returns / tax overviews / SA302’s.
• Business plan
• Cash flow forecast
• Bank statements
• We will continue to see a polarisation in the market - mainstream lenders

against specialist lenders

Adapt and thrive

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Outcomes

• We have seen a big increase in five year business
• Gross rentals seemed to come as a surprise to many brokers
• Less ‘vanilla lending’, significantly more specialist lending
• Landlords looking for ways to maximise yields
• Shift in focus to Northern Towns/Cities.

Adapt and thrive

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Landlord strategies

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Rent increases

Adapt and thrive

Tenant demand

• Landlords continue to report

strong tenant demand for PRS property

• Market underpinned by population

growth, limited house building and mortgage affordability constraints

Rental growth

• Rent increases usually follow inflation
• Required increase over the next four

years to mitigate policy changes

• utstrips inflation
• Opportunity for sustained above

inflation increases untested

• 2
• 1

1 2 3 4 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Jun-12 Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15 Jul-16

% Index of Private Housing Rental Prices: % change over 12 months England England excl London

20 40 60 80

Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16

% of landlords saying demand is Increasing % of landlords saying demand is stable % of landlords saying demand has decreased

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Rent increases – worked example

Adapt and thrive

Scenario:

• Higher rate tax payer
• £600pcm rent, loan amount £150,000
• Interest 3.5% (with an assumption that mortgage interest will not increase)

Current 2017 / 2018 2018 / 2019 2019 / 2020 2020 / 2021

Rent

£600 £600 £600 £600 £600

Net Profit

£1,170 £908 £645 £383 £120

Rent

£600 £637 £673 £709 £746

Net Profit

£1,170 £1,170 £1,171 £1,167 £1,171

What would you have to increase your rent to in order to maintain your net profit?

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Maximising attractiveness of your property

Adapt and thrive

• Keeping your property in tip top order to maximise rental income
• Value your existing tenants
• Letting the property quickly means less void periods
• Select the right location

what is your driver - yield or capital appreciation?

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Houses in multiple occupation

Adapt and thrive

Configuration 1:

3 bedroom terrace Rented to one family at £600pcm Higher rate tax payer Loan amount £150,000, interest 3.5% Full occupancy

Configuration 2:

3 bedroom terrace Rented to four sharers at £75ppw / Avg £1,125pcm Higher rate tax payer Loan amount £150,000, interest 4% 45 weeks occupancy

Rent (£600)

Net Profit £1,170 2017 / 2018 £908 2018 / 2019 £645 2019 / 2020 £383 2020 / 2021 £120

Rent (£1,125)

Net Profit £4,500 2017 / 2018 £4,200 2018 / 2019 £3,900 2019 / 2020 £3,600 2020 / 2021 £3,300

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Incorporation

• A lot of people are talking about it

but not as many are taking the plunge

• The broker’s job is to provide

information about all of the

• ptions available and to

encourage the customer to seek the right professional accountancy advice

• Ltd Company lending isn’t

suitable for every Landlord

Adapt and thrive

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Re-mortgaging within six months

Before…

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Re-mortgaging within 6 month

Purchase price: £177,000 Renovation cost: £15,000 Post works valuation: £250,000 80% re-mortgage with Mortgage Trust: £200,000 Timescale: Two Months

After

Short-Term Finance / Bridging Finance

‘Subject to status’ and ‘individual application assessment’, etc. ‘No Advice Given’ and ‘Illustration only’ plus legal & Val fees, Bridging Finance Paragon do not do Bridging Finance (currently)  Bridging Finance rates typically start from monthly fee  Light; 0.55% to 50% LTV or 0.75% for 75% LTV – 1.95% fee  Structural; 0.75% to 65% LTV or 0.83% to 75% LTV – 1.95% fee  No Experience; 0.94% to 75% LTV – 2% fee

Exit Finance – BTL Mortgage ‘Subject to status’ and ‘individual application assessment’, etc.

‘No Advice Given’ and ‘Illustration only’ plus legal & Val fees,

Mortgage Rates – 75% LTV Remo & Open Market Value (OMV)  Within 6 months  Own Name – 1.95% with 1% fee, 2 yr fix  Ltd Company – 3.55% with £995 fee, 3 yr fix  HMO 3.6% with £1,495 fee = using “Rental Value” 3 yrs fix 4.59% with 1.25% fee, 5 yr LIBOR Tracker  After 6 months  Own Name – 1.98% with £995 fee 2 yr fix  Ltd Company – 3.19% with 1.5% fee, 2 yr fix  HMO 3.6% with £1,495 fee = using “Rental Value” 3 yrs fix 2.09% with £995 fee (maximum 5 bedrooms), 2 yr fixed

Some things you might not know about Paragon

Day 1, Remortgages Up to 85 years of age - youngest borrower Lend up to 80% Loan to Value No HMO experience required, 1 years minimum landlord experience Allow more than one lender on a Ltd Company Can change existing Paragon Mortgages in own name to Ltd Company, for an admin fee £10m lending (although I’ve done a little bit more)

PRA Regulation, Broker Summary

Restriction of lending

 Responsible loan based on rent

 125% of 5% - £600 = £115,200

 Before 2017

 145% of 5.5% - £600 = £93,506

 Mostly used in own name

 125% of 5.5% - £600 = £104,727

 Mostly used in Ltd Company

 125% of 4% - £600 = £144,000

 5 year fixed rate, with Paragon

Other points

 Portfolio Landlord, more than 3

 September new rules

 Top slicing rental from income  Lenders not regulated by PRA  BOE cannot forecast 5 years  No mortgage prisoners

 £ for £ refinance

 Regulated (Consumer) Buy to Let? Paragon don’t - MT do

Get ‘Qualified’ Advice!

When choosing a broker, make sure you know the following;  Experienced in providing your required mortgage advice  Independent and no mortgage lender panel – most important!  Their fee, you would benefit from no broker fee “The right tax Advice can dwarf any interest rate margin saved” When sourcing tax advice, ensure they have your confidence:  Experienced in providing property tax advice, Ask for successful examples, case studies, etc.  How much do they charge, what are their fees  If incorporation, when will they seek approval from HMRC, prior to their fee? Broker fee will cost hundreds, lender could cost thousands & wrong tax advice could cost 10’s of thousands of pounds

Thank You Any Questions Jason Wilde Vincent Burch