With the stamp duty holiday open to additional property purchasers – at least in England, Scotland and Northern Ireland – this time, there was always likely to be a growth in the level of interest by investors who might well feel this is a limited tax-saving offer, which might not be repeated again.
Of course, even with the holiday, the 3% surcharge still needs to be paid and therefore landlords are still not able to access the market on the same terms as residential purchasers, but if you are a landlord who was planning to purchase over the next 12-18 months then you might be considering bringing that forward in order to transact between now and the end of March.
What you might not anticipate though is something of a cross-over between residential and buy-to-let purchasing; in other words, first-time buyers attempting to buy investment properties rather than first homes for themselves, but according to Legal & General Mortgage Club research there has been an increase in mortgage searches along these lines.
Its latest mortgage criteria search tool data suggests there has been an 18% increase in the ‘first-time buyer, first-time landlord and non-owner occupier’ search combination, just from the start of September, and quite frankly, this tends to set the alarm bells ringing.
To begin with, I’m not suggesting that those who don’t own a property themselves might not be interested in property investment, but as a lender active in this market we have to be aware of what a lack of property-owning experience might mean for an investment’s success, and we also have to be on our toes for attempts to game the system.
You’ll know immediately that I’m talking about potential first-timers, who in the current environment may not be able to purchase a home themselves, looking at ‘investment’ as a means to purchase, live in the property themselves (with potentially other tenants) and only pay the interest on that mortgage every month.
Now, whereas this type of activity might have been more prevalent back in the pre-Credit Crunch days, there still may be some individuals who feel they can achieve such aims right now, albeit even with the higher deposit amounts required by a buy-to-let mortgage lender.
As advisers and lenders, we have to be aware of such attempts and guard against them, but I’m also not naïve to think that some in the market won’t still be inclined to facilitate such activity.
For those who genuinely want to buy a buy-to-let property without owning their own home, I would again express extreme caution and would like to think that advisers coming across such prospective landlords would do the same.
We do not offer our mortgage products to first-time buyers and we have strict lending criteria and underwriting for first-time landlords, because we believe that individuals should have a level of experience in the property market, even if it is just owning their own home and servicing those mortgage payments each month. That’s without looking at income and affordability.
Our view is that the primary mortgage applicant must have been a property owner for at least 12 months, otherwise we have no home-owning history or experience to look upon when making a lending decision.
Let’s be honest here, if you can’t get on the housing ladder, then you may well be tempted to try and do it through the back door. At what point might you begin to look at this option? And might you be more inclined to do it when there is less stamp duty to be paid? Even if you have to pay the surcharge? The allure of an interest-only option when you can’t get a repayment mortgage on a main residence might be too much.
It’s for those reasons we take a different approach but its also important for advisers to be aware of their client’s intentions and the fact that, should they live in that property when they are not allowed to, or not been upfront with the lender, then they are effectively committing mortgage fraud, and the adviser may be seen as party to it.
We all want transaction levels to remain strong and we want genuine landlords to enter the PRS and add to the supply of rental property required. But, in our view, that requires the right intentions and requires home-owning experience – if the borrower has neither, then the likelihood of there being issues and problems grows significantly. Don’t put either your livelihood or the client at risk by facilitating it.
Bob Young is CEO at Fleet Mortgages