80% LTV Buy to let mortgages are popular with leveraged investors
3 days ago, Leeds Building Society released details of their new Buy to let mortgage which allows BTL investors to borrow up to 80% of the purchase price on investment properties. This increase from 70% to 80% followed an increase of 75% LTV TO 80% LTV on buy to let lending from Aldermore a few days prior to that.
This means that in addition to The Mortgage Works 80% LTV and Saffron BS 80% LTV buy to let mortgages, there are now three lenders that will allow you to borrow at 80% LTV and a the lender Kent Reliance who will allow upto 85% LTV on buy to let mortgages. This follows Kensington which dropped their 85% LTV product in Spring last year.
In effect, high LTV lending availability is now at it’s highest for BTL investors since 2008, but what does this mean for the market and will we see a return to the mid 2000’s when high LTV lending was at its highest?
First and foremost, we believe that super high LTV lending is not sustainable in the long term and the only reason that there have been fewer insolvencies and repossessions than there should be, especially with over-leveraged investors, is due to the historically low interest rates that have helped thousands to cling onto their portfolios. Saying that, 80% LTV to 85% LTV lending can be helpful and sustainable to investors who are willing to develop disciplined finance management skills or already have the required micro-management skills to build a portfolio or have the holy grail ability of being able to buy and sell property at a profit in unsteady seas. The key word is discipline and having the foresight to acknowledge the immediate twists and turns of the local property market. What 5, 10 or 20 years holds is anyone’s guess, but if an investor has the discipline to diligently manage their growing portfolio’s then we see 80% lending as beneficial.
Now that we have determined the usefulness of 80% lending, what are the products themselves offering. Before we dissect the four lenders, we should state that we are not FSA regulated and anything stated throughout the news section are just opinions.
|Leeds BS||5.69%||2 years||£999||5.99%|
|Leeds BS||5.99%||2 years||£0||5.99%|
The Mortgage Works (TMW)
Up until mid November 2011, they were offering 80% LTV mortgages at 5.49% fixed for 3 years which is a lot more reasonable than the 6.39% that is being offered now. They have raised the rate by almost 1% as they realised that interest rates were going nowhere. In addition to that, out of the four lenders, they have least requirements as per income proof, meaning they will be the first ones to go to for most investors who can’t prove income despite them being the most expensive lenders for a fixed two year term. On a plus note, their current Standard Variable Rate is the lowest out of the four.
Saffron Building Society
While the rates on paper seem fine at 4.99 and 5.49% fixed for two years, I have been informed that it is notoriously difficult to actually get a mortgage with them due to their heavy documentation requirements. In addition, the £2,995 arrangement fee on the 4.99% product is ridiculously high which can severely eat into your profits. Not a favourite of ours, but we’d be keen to hear from you if you have been able to draw out a mortgage from Saffron Building society.
Leeds Building Society
They have a non-refundable booking fee of £199 and then a £800 arrangement fee on their 5.69% product and no fees on their 5.99% product, meaning costs to arrange these 80% LTV mortgages is significantly lower than with the other 3 lenders. However, the restriction with Leeds BS is that an investor can have a maximum of four Buy to Let mortgages across the board with any lender, meaning that unless you are fairly new to Buy to Let, then this lender is not an option for you. Additionally, the SVR is fairly high at 5.99%.
Aldermore Building Society
Again, they have restrictions as per how many mortgages you can have which has recently been lifted from 3 to 5 and maximum lending to £1mln which is a bit better than Leeds Building Society, but not that great! On the plus side, they do like landlords and don’t normally ask for income verification, much like TMW and their rates are lower than TMW. They do lend actively, and if you are a landlord with a couple of properties and would like to borrow at 80% then it would be good to look at Aldermore.
In summary, we would say that the it’s a toss up between Aldermore and The Mortgage Works when you’re looking at 80% LTV mortgages for buy to let purposes, but in the end it does still boil down to TMW as there are portfolio restrictions with Aldermore. Leeds BS and Saffron are just not there yet in our view. We do hope that TMW start to realise that there are a few more players on the market and drop their 6%+ rates down to the more acceptable levels of 5%+, but I think they realise that they hold the power for most investors.
As for the market in general, it seems to be a good thing that lenders are increasing their LTV’s as it indicates that they don’t anticipate further huge falls and that they market will, at worst, bottom out to 80% BMV.