Five year fixed rates have become increasingly popular of late. With some of the lowest rates on record available, the ability to secure a longer-term fixed rate at a cheap price is currently easier than ever. Yet, with the buy to let market set to be rocked by further tax changes in April 2017, landlords looking to borrow on portfolios or Houses of Multiple Occupation (HMOs) face an increasingly uncertain future.
Firstly, the tax relief claimable on mortgage interest will be capped at the 20% basic rate, meaning landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when calculating a profit. Not only this, the sector has already had to bear the 3% increase in Stamp Duty Land Tax, making the market increasingly tough for landlords. Income Coverage Ratios (ICRs) will now be taking the higher tax rates of 2017 into account, putting pressure on landlords for their income to be sufficiently higher than their monthly outgoings.
As a result, lenders have undoubtedly been favouring higher rental yields and lower loan to values (LTV), yet the news that limited companies will be exempt from these changes has proved a silver lining for many. Holding portfolios or purchasing within a limited company has become an attractive way of avoiding the stamp duty surcharge.
This leads us on nicely to our recommended product for this week, which could prove an excellent option for customers already owning or looking to purchase property within a company structure…
Buy to Let five year fixed rate for HMOs with 125% times 4% rental calculation
One lender that we have an excellent relationship with is now offering a five year fixed buy to let product at 75% LTV with a rate of 3.75% for single self-contained units, or 3.85% for HMO/multi-units with a £1,999 fee. On top of that, the ICR stands at 125% times 4% for single self-contained units, or 130% times 4% for HMOs and multi-unit properties.
This is one of the best rental calculations available since the majority of lenders raised theirs to 145% times 5.5%, which proved a huge affordability stretch for many landlords. It is also an excellent rate for HMOs compared to the majority available on the market, which comes with the additional benefits of greater security and certainty that a longer-term fixed rate provides.
Available for both individuals and landlords, this is a lucrative opportunity for landlords with properties that have a relatively poor rental yield (as is the case for many in London, with the average rental yield at 3-4%), but are still looking to gear up to 75% LTV.
Essentially, this is a very competitive rate for HMOs with a great rental calculation to back it up. As far as multi-unit flats are concerned, this would prove a very worthwhile option for a client who has converted a house into flats, for example, and now wants to refinance and capital raise.
If this is something you are interested in, or you wish to find out more about the current situation for the buy to let market, please do not hesitate to get in touch. Our expert brokers are on hand anytime to answer your questions and introduce you to the right lender.