Landlords raising funds for home improvements

Landlords are increasingly turning to re-mortgaging to finance property improvements, according to the latest figures.

In the 2017 calendar year the figure was 8,459 out of 152,100. But in 2016 only 1.9% of landlords used re-mortgaging to help fund house renovations. This represents 2,967 landlords out of 153,000 re-mortgaging.

The greatest increase was in the East of England. In the last 12 months one in ten re-mortgaging landlords used cash on home improvements, up nearly 7% in the last two years.

Landlords in London took out the most money to spend on buy-to-let improvements, £35,470 on average. This is over three times the amount an average landlord in Yorkshire withdrew £11,150. Across Great Britain as a whole, the average landlord re-mortgaging to make improvements took out £22,850.

Tax changes - have you sought advice?

It is now six months since the introduction of new Prudential Regulatory Authority rules that require lenders to impose more robust underwriting processes for landlords with four or more mortgaged properties.

But this is only part of the regulatory and tax changes landlords have faced recently. At the start of 2017, the PRA required lenders to apply new stress tests, potentially limiting what some buy-to-let investors could borrow.

At the same time, the Government is in the process of reducing the tax relief landlords can claim on mortgage interest payments. It has also introduced a higher stamp duty surcharge on additional property purchases.

These are wide-ranging reforms, with the potential to influence both the profitability of existing buy-to-let investments and the ability to re-mortgage at a competitive rate.

How does a buy-to-let mortgage work?

In principle, buy-to-let mortgages work in the same way as a residential mortgage, a lender advances you a sum of money over a fixed period, secured against a property.

However, there are some key differences between residential and buy-to-let mortgages:

• Buy-to-let mortgages are often on an 'interest only' basis whilst most new residential mortgages are arranged on a repayment basis

• The amount you can borrow is typically determined by the rental income the property will generate, not by your own earnings

• You will generally need to put down a larger deposit

Landlords is it time to fix a deal?

Many landlords around the country are expressing concerns over the new tax changes and the effect they are beginning to have on profitability. It is widely expected the next issue landlords will have to deal with is increased interest rates.

If the rumours and expectations are true, then it would be a very good time to review your current buy-to-let mortgage with a view to fixing the rate for the longer term. It is not in question that borrowers have had a very good run of low rates of interest, but this could be about to change in a big way.

It is not all bad news though, there are still a very good choice of fixed rate deals on offer. Fixed terms usually offered are between 2 to 10 years, do be very careful before selecting your term as there are many issues to consider when fixing a longer-term deal.