Did you know that it used to be easier to get a buy to let mortgage than it was to secure financing for a home you intended to live in? Lenders offering 1st charge refinance products, and 2nd mortgage loans are looking for generous coverage of the payments based on your after-tax income.
In 2014, many looking to take their first steps onto the property ladder stumbled upon a (sort of) loophole that the FCA perhaps missed or didn’t think through entirely. This fundamental statement in their 2014 Mortgage Market Review shook things up.
“Customers can borrow an interest-only mortgage if there is a credible repayment strategy”.
This was about the Consumer mortgage, known short as a CBTL mortgage.
Furthermore, those went partially unregulated because their accessibility didn’t require an income assessment and strict criteria to be met. After all, it only meant borrowers were required to indicate they could charge sufficient rental income to cover the repayment cost of the interest payments. The rest of the loan is secured against the property, thus providing lenders with surety.
Due to the open accessibility of interest-only payments, one broker reported a 46% increase in buy-to-let mortgage enquiries. As you can imagine, eyebrows and questions were raised.
The answers revealed a worrying trend in the property market.
Mortgage Fraud
The Law Society advises solicitors working in the property conveyancing sector (and all others) that under the Fraud Act 2006, they can indeed be held liable for Mortgage Fraud, even if they weren’t aware of it because they should be doing due diligence to mitigate the risk of fraud being committed. Lawyers need to know that they aren’t aiding and abetting, which, if you don’t know, is helping someone commit a crime.
As the Crown Prosecution Service put it:
“Although it is not possible to attempt to aid and abet, it is possible to charge the aiding and abetting of an attempt”.
Therefore, all conveyancing solicitors take the issue of mortgage fraud seriously. And it’s something all landlords should know because it’s the why behind the how. It’s why there are so many rules to follow and how you seemingly have to jump through endless hoops to obtain finance.
Defining mortgage fraud
The simplest way to explain mortgage fraud is to think about insurance fraud since everyone is reasonably familiar with. You provide your insurance company with accurate details to get the right quote. Falsifying data for a cheaper insurance policy is fraudulent. It should also be mentioned as pointless because falsifying data renders policies void. The same thing happens in the mortgage market.
People were, and some likely still are, using the get-out clause to prevent every consumer from accessing interest-only mortgages, which, until 21 March 2016, were an unregulated financial product. Lenders don’t need to meet strict criteria.
However, they aren’t entirely off the hook if this happens because arranging a buy-to-let mortgage for a consumer intending to live in a property without sufficient funding to repay it could land any party involved in the transaction in muddy water.
Since residential mortgage repayments are longer-term, some are tempted to approach the interest-only mortgage market. This isn’t fraudulent in itself, but pretending to have the income you don’t have and don’t intend to gain is.
Interest-only mortgage products don’t pay back the capital initially and are more suited to buy-to-let mortgages for business purposes. As such, some people who were finding it difficult to obtain a mortgage, perhaps due to limited income, would attempt to circumvent that by claiming the property would be rented so the revenue would increase.
The Mortgage Credit Directive
The Mortgage Credit Directive comes into force on the 21st of this month (21st March 2016).
It will be the primary legislation governing all types of mortgages, including consumer buy-to-let mortgages.
The Directive splits the buy-to-let mortgage into two categories. One is for consumers who perhaps inherit properties and subsequently lease them out. This type of situation is regarded as accidental landlords.
The Landlords Guild comments “…Lenders have to impose affordability tests similar to residential mortgage underwriting”. This will make it more difficult for accidental landlords to access financing.
The other type is for the professional buy-to-let market. At the time of application, you will be required to declare if you are applying for business purposes. The CBTL mortgage will be regulated as a financial product because consumers need protection, but for business purposes, consumer law won’t be used. Therefore, that segment of the buy-to-let market will remain partially unregulated since consumer protection won’t apply to business finance.
What this means for the property developer
According to statements from some leading UK lenders, the application process will not undergo any material changes.
However, mortgage brokers have some concerns. While 70% don’t see any significant changes, 17% expect to do less business in CBTL mortgages or houses in multiple occupancy financing, while 12% predict more business.
Property developers have always known the importance of financing, particularly getting things in place before attending auction houses, where properties can be snatched up cheap. Most properties that go to auction often require repairs, maintenance, or value-adding upgrades. Mortgages of any type rarely offer much above the property valuation, if any.
This often constrains property developers’ upgrades. Furthermore, for a home to be considered for any mortgage product, it has to be habitable. It’s often the case with auction properties that they aren’t habitable at the time of purchase, which is why they are snatched up on the cheap.
When considering any property, financing should be considered first because without it in place, there’s a smaller chance you’ll be able to complete the project within the required budget.
That’s when you may want to consider a bridging loan because it won’t be tied to the property but instead, be considered on its own merits. If you have a property and know what you will do with it, it is possible to bridge the financial gap. Since it’s not directly tied to the Mortgage Credit Directive, there are far fewer restrictions on accessing finance with bridging.
Without getting too political, it’s worth pointing out that the UK government did not choose to implement this new directive. The Mortgage Credit Directive is European Law.
As Louise Reynolds of Property Venture pointed out though – “George Osborne is making things worse for landlords” – this is in regards to the stamp duty increase as reported here. They are two separate issues currently affecting landlords.
There’s no denying the fact that the buy-to-let market is changing rapidly, and every landlord will see their business forego some changes. Some will weather it out and thrive, while others may consider throwing in the towel, but regardless of how you feel, now is an excellent time to review your portfolio.
If you have your eye on a property or even a semi-commercial mortgage and want to invest before the tax changes come into effect in April, the fastest route to financing will be a bridging loan.
Mortgage Credit Directive and Landlord and Tenant in 2024
The Mortgage Credit Directive (MCD) is a significant regulation in the UK, impacting both landlords and tenants. Understanding the implications of the MCD, along with navigating the complexities of loans and mortgages, is crucial in 2024. This guide will explore the MCD and its effects, along with discussing various financial options available, particularly for those with bad credit.
Understanding the Mortgage Credit Directive
The MCD aims to create a single market for mortgages across the EU, ensuring a high level of consumer protection. It sets out rules on how mortgage credit agreements are conducted, including advertising, pre-contractual information, and creditworthiness assessment.
Key Elements of the MCD
- Consumer Protection: The MCD ensures that consumers receive clear and concise information before entering into a mortgage agreement.
- Creditworthiness Assessment: Lenders must assess the consumer’s ability to repay the loan.
- Advice and Services: Consumers must be informed whether they are receiving advice or simply information about a mortgage product.
Landlord and Tenant Dynamics in 2024
The relationship between landlords and tenants continues to evolve, influenced by regulatory changes, market conditions, and financial considerations. The MCD affects both parties, particularly in how loans and mortgages are managed.
Impacts on Landlords
Landlords need to be aware of the MCD when refinancing or securing new mortgages. Understanding loan options, especially for those with bad credit, is crucial.
Bluestone Mortgages Mortgage Bad Credit Score
Bluestone Mortgages offers products for those with a mortgage bad credit score, allowing landlords to refinance even with poor credit.
Impacts on Tenants
Tenants benefit indirectly from landlords’ access to favourable mortgage terms, which can influence rental pricing and property maintenance. Tenants should also be aware of their options for securing loans and improving credit scores.
Secured Loans Broker
For both landlords and tenants, working with a secured loans broker can provide access to the best loan products available, tailored to individual financial situations.
Financial Products for Those with Bad Credit
Even with bad credit, there are numerous financial products available to help manage and improve financial health.
Bad Credit Loans Instant Decision
Products like bad credit loans instant decision offer quick access to funds, although typically at higher interest rates.
Homeowner Loans Bad Credit Direct Lender
Working directly with lenders can sometimes offer better terms. For those with bad credit, homeowner loans bad credit direct lender options are available.
Homeowner Loans for Bad Credit
Homeowners with bad credit can explore homeowner loans for bad credit options. These loans use your home as collateral, which can help secure better terms.
Debt Consolidation Solutions
Debt consolidation can simplify your financial situation by combining multiple debts into a single loan with a potentially lower interest rate.
Consolidation Loan Calculator
Using a consolidation loan calculator can help you understand your options and the potential savings from consolidating your debts.
Debt Consolidation Loans for Homeowners
Consolidating your debts into a secured loan can simplify your financial management and potentially lower your interest rates. Explore debt consolidation loans for homeowners for more information.
Best Consolidation Loans
Finding the best consolidation loans requires research and comparison. Look for loans with favourable terms and rates that suit your financial needs.
Loan Products for Various Needs
Depending on your financial needs, various loan products are available, from secured loans to personal loans for specific purposes.
Loans for Credit Cards
Using loans to pay off credit card debt can be an effective strategy. Look for loans for credit cards that offer lower interest rates compared to your current credit card rates.
Nationwide Debt Consolidation Loan
Nationwide offers a debt consolidation loan product that allows for high LTV ratios. This can be a practical solution to combine your debts into a single monthly payment.
Loan Examples and Interest Rates
Understanding the interest rates associated with different LTV ratios can help you make informed decisions about which loan products are best for you.
| Loan Product | Interest Rate | LTV Ratio |
|---|---|---|
| 10000 Loan Over 5 Years | 4.0% | 80% |
| 25000 Loan Over 5 Years | 4.5% | 85% |
| 50000 Personal Loan | 5.0% | 90% |
Vida Homeloans Loan for 50000 Pounds
Vida Homeloans offers a loan for 50000 pounds option for those with bad credit, allowing for a 95% LTV ratio. This can be a viable option for those looking to purchase a home with a minimal deposit.
Kent Reliance Secured Loan Broker
Kent Reliance provides secured loan broker services with competitive rates for borrowers with varying credit profiles. They offer flexible terms and can accommodate higher LTV ratios.
Remortgage to Pay Off Debt
For those looking to manage their debts more effectively, remortgage to pay off debt options can provide significant benefits.
Remortgage with Bad Credit
Even with a poor credit score, there are options available to remortgage with bad credit, providing opportunities to improve financial standing over time.
Practical Tips for Landlords and Tenants
Both landlords and tenants need to stay informed about their financial options and the implications of the MCD. By leveraging available resources and understanding the market, better financial decisions can be made.
- Utilise online calculators and tools to gauge the feasibility of loans and mortgages.
- Regularly check and improve your credit score to access better financial products.
- Consider professional financial advice to navigate complex loan agreements.
In 2024, navigating the landscape of mortgages and loans requires careful consideration of regulatory frameworks like the Mortgage Credit Directive and an understanding of the various financial products available, especially for those with bad credit. Landlords and tenants can secure better financial futures by staying informed and making strategic financial decisions.