As more customers reach the end of their previous fixed-rate period, advisers will likely see increasing issues. It is good to see more specialist lenders looking to offer product transfers at the end of the term now.
However, there will be many mortgage rates coming to an end with a lender that does not offer a product transfer. If the borrowing is at the maximum loan to value (LTV), it is unlikely that the rent will be sufficient to remortgage to another lender, potentially leaving the customer on a higher, unaffordable variable rate.
By talking through some of the following options with their customers, advisers may be able to help landlords navigate the challenges:
Low rates/high fees
A new breed of five-year fixed rates is available with high fees of four per cent upwards to allow the lender to offer a lower rate to assist with affordability. Most customers will look to add the fee to the loan, so make sure you advise the client of the additional interest costs over the term.
Adding value
Many clients are still keen to invest and take advantage of new opportunities in the market. For example, buying a property for a lower cost while market prices are slow and converting or renovating to add value may give your client greater portfolio flexibility due to increased equity.
Existing properties may also benefit from development to increase value and rental income.
Selling up
Some clients feel there is no alternative but to sell up. However, for portfolio landlords, carefully picking one or two properties and using the sale proceeds to pay down other mortgages could de-leverage the portfolio risk sufficiently to keep the rest of the portfolio running.
Tax breaks
Is your client taking advantage of holding property inside a limited company? This is a way of achieving a lower rental calculation for higher-rate taxpayers. However, tax advice around the costs of moving existing properties into a corporate structure will need to be sought.
Change of use
Does the property lend itself to becoming either a house in multiple occupation (HMO), holiday let or Airbnb? Generally speaking, these properties generate higher rental income, which can be used to help with affordability. Higher-rate taxpayers with properties in their personal name can also offset all mortgage interest payments for fully furnished short-term let properties.
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Not all lenders have exactly the same rental calculation criteria, particularly for like-for-like mortgages. Therefore, it is worth researching different options. Second charges could also be an option.
Is there value in one property that can be capital raised to lower the mortgage in another? This could also be the residential home. Second charges often have more innovative ways of assessing affordability.
There are several options, and it could also be as simple as putting rents up on properties that have not increased for a while. If some landlords decide to sell up, there will likely be an even greater rental demand. This may bring even more problems to an already distressed housing market.
However, advisers can only assist their clients with solutions to individual issues. It is for the greater powers that be to fix the housing mess.
