Why is buy to let finance problematic for so many landlords?

All landlords and agents in Scotland will now have to protect a tenant's deposit money.

Andy Young, NLA Mortgages expert, analyses recent data from the NLA which suggests landlords are having difficulty accessing finance.

A third of landlords want to expand

NLA research has revealed that a significant amount of landlords are being hampered in their efforts to expand due to difficulties accessing finance. The stats suggest over two thirds (67 per cent) of landlords rely on a buy to let mortgage to fund their portfolio, with 31 per cent declaring their interest in looking for additional buy to let lending or re-mortgaging.

This equates to approximately 300,000 landlords that want to expand their portfolio: good news for the housing sector as it is vital in meeting the ever increasing demand for housing. By providing more housing, it will give renters access to a larger variety of properties which can help to keep the cost of renting down.

Why are landlords struggling to obtain finance?

So why are lenders increasingly becoming too conservative with their criteria? The financial crisis has a lot to answer for how lending is handled now. More regulation has been introduced as a way to avoid another financial catastrophe from happening. For lenders to ensure that they are following the responsible lending rules, which were set out by the FCA in the mortgage market review, some may have gone over the top and issued a blanket set of criteria which everyone needs to meet regardless of their individual circumstances. This means that if you don’t tick all the boxes you could be denied finance. It is therefore not hard to see why 56% of landlords think that current buy to let lending criteria is too conservative.

So with lenders trying to cover themselves as well as their customers to ensure that people are less likely to get into financial difficulty it is becoming increasingly harder for landlords to get the necessary lending in order to expand. Landlord A shows the frustration many are feeling:

Landlord A

“Mortgage lenders are becoming increasingly difficult to work with. The requirement to produce further information on income is causing delays and becoming problematic…if your income does not fit their box on criteria they say no, which wastes time and slows the process.”

The landlords that were surveyed declared their frustrations at lenders for not considering their personal situation, with six in ten feeling that their situation had not been taken into account. From a lender’s perspective it is important to consider what the risk involved is, especially when regulation dictates responsible lending, but there also needs to be a sensible balance.

Here Landlord B points to what others are thinking:

Landlord B

“Mortgage lenders should consider each borrower on their own merits, and not impose a blanket ban on lending to individuals earning less than £25,000, regardless of their personal circumstances.  Someone who is lucky enough to have no outgoings, servicing a mortgage with personal income of £25,000 a year is more than adequate.”

There are two ways a landlord can obtain a buy-to-let mortgage, either by going direct to a lender or by using the services of a broker, and the NLA believes it is vital that landlords have access to a wide range of products in order to find the one most appropriate solution for them.

Find a mortgage that suits your circumstances

If you’re a landlord faced with this scenario then you’ll be pleased to know the NLA is one step ahead.  NLA Mortgages was set up with the understanding that landlords need access to a range of products that meet their specific individual circumstances and to provide a solution that’s simple, fast and adaptive to your needs.

We provide a free online search facility which sources from over 600 mortgage products and schemes that are not available in the general marketplace and provide access to buy to let mortgage specialists via a dedicated Helpline.

Don’t just take it from us either; landlords have submitted in excess of £56 million of buy to let mortgage applications to NLA Mortgages this year alone.

For more information on what the NLA can offer get in touch at www.landlords.org.uk/servicesnla-mortgages or call us on 029 2069 5555.

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