Getting the Best from your Buy to Let Investment in a Rising Rate Environment
The headlines in the money pages of the papers can make for scary reading nowadays. A number of Bank of England Base Rate increases since December, record fuel prices and the cost of living rising steeply. As a buy-to-let landlord, you could be forgiven for being a little nervous about the future, particularly if you have a portfolio of properties.
However, as is often the case, the headlines only tell half the story – and usually the most negative half. So, it’s important to take a step back and consider the wider context before you make any decisions. For example, the Bank of England may have increased the Base Rate from 0.10% to 1.25% in just a few months, but we remain in a historically low interest rate environment. Only 20 years ago, the Base Rate was at 4% and 30 years ago, it was higher than 10%. Set against this backdrop, it’s reassuring to realise that while rate increases make headlines today, they remain relatively insignificant when compared to the long-term average cost of borrowing.
The rate you pay on a buy-to-let mortgage isn’t just influenced by the underlying Base Rate, of course. The level of competition between lenders vying for your business is a significant factor in how keenly they price their products. And, in this respect, landlords have never had it better.
According to data from Moneyfacts, there are now more than 3,500 mortgage products available to landlords and investors. Not only is this the highest number seen since Moneyfacts records began, but it also represents nearly 1,000 more deals than were available pre-pandemic in January 2020, and Moneyfacts says that the number is continuing to rise. So, it might be a rising rate environment, but it is also a very competitive lending environment, and that means there are still some really good deals out there if you know where to look.
The final piece of the puzzle to reassure landlords is the ongoing dynamic of demand for rental property exceeding supply. According to the latest Zoopla UK Rental Market report, rental demand was up 76% in January compared to similar periods between 2018-2021. The report says that UK annual rental growth for new lets increased by 8.3% in Q4 2021 as demand gained momentum amid a “chronic shortage of supply”. And London rents increased even more – up by10.3% on the year. Overall, Zoopla says that cumulative rental growth is 12% over the last five years, which includes the difficult period during the height of the pandemic. This is slightly under the rise in average hourly earnings over the same period, which means that while rents are increasing, they remain affordable for most tenants.
So, there’s no need to panic about your buy-to-let investment, but at the same time, in a rising rate environment, you also can’t afford to rest on your laurels. It’s important that you pay close attention to the mortgages on your properties to ensure you are not paying over the odds. In this environment, inaction is often punished by having to pay more expensive rates.
We would recommend that you take action to prepare in advance. A huge number of buy-to-let mortgages are due to come to the end of their initial deal period in the coming months and if you have one or more of these, you should start thinking about remortgaging a full six months in advance of the deal ending. This is around the time you may receive a letter from your lender offering a product transfer, and it can sometimes be tempting to take them up on the offer. However, remember there is no guarantee that the rate you are being offered by your existing lender is the best rate available in the market. So, take the opportunity to speak to a specialist buy to let broker who can research all of the options across the thousands of products that could be available to you to identify the best choice for your circumstances. And, if it happens that the product transfer is the best option for you, a broker can manage the process for you, saving you the hassle.
Being well-prepared means that you can potentially access rates now before lenders increase their pricing in the future, even if your current deal hasn’t yet come to an end. Mortgage Offers from mainstream buy-to-let lenders are usually valid for six months, while Offers from specialist lenders tend to be valid for three months, and we are already working on remortgaging landlord customers whose existing deals don’t come to an end until September.
Be mindful that, with rates on the rise, lenders tend to re-price their products more frequently and often with short notice, so as well as preparing to remortgage in advance of your deal ending, we also recommend that you do everything you can to be as ‘document ready’ as possible. If you are able to readily provide the documents requested by a lender to support your application, it’s more likely that the application will be processed quickly, which means you will have more chance of securing your rate ahead of any more potential increases.
So, how do you become document-ready for a buy-to-let remortgage? Here are some of the documents that are commonly requested by lenders:
Documents to obtain for the process:
- Tax Documents
You should have three tax documents each year;- Tax Return (SA100)
- Tax year Overview
- Tax calculation (previously known as SA302)
- If you are employed, 3 months’ payslips and P60 and, if you are retired, your Pension P60
- Up-to-date property portfolio information
- 3 months rental bank statements
- Proof of address in the last 3 months
- ID (passport or driving license)
- EPC register check
- You need to ensure that your property has a valid EPC, which can be checked on the government website.
By being prepared and making sure you have access to the documents required by lenders, you will give yourself the best possible chance of ensuring you are able to remortgage at the best rate for your circumstances. Of course, with so many products to choose from and much to consider, particularly if you have multiple properties, the process can seem a little daunting. The good news is that you don’t have you go it alone and you will give yourself a greater chance of success if you plan your approach and seek professional advice at the outset. Not only will a specialist buy-to-let broker be able to research the market on your behalf, guide you through the process and manage the application right through to completion, but they will also have access to alternative lenders and options that are not available to you directly.
At NRLA Mortgages, we have a team of expert advisers who can discuss all of your mortgage requirements, whether you are just looking for the best rates or want to use a remortgage as an opportunity to raise capital and grow your portfolio. If you would like to discuss your options, give NRLA Mortgages a call on 0161 341 0581
