How much will your Loan to Value drop – UK Mortgage changes | Property Rant 010

New regulations will curb the amount you can borrow on a buy to let mortgage. In this video, Brett explains the impact and provides simple examples.  This is particularly important if you were expecting a higher Loan to value and essential if you were relying upon it.

Hi, guys. Property Search…Think Gladfish. I’m Brett Alegre-Wood and this Property Rant.

So today I want to take you through a quick example of the changes that are happening in the mortgage market right now. Now, this is a short version of…if you go to my website, you’ll get the longer version, which goes into a lot more detail in this, if it affects you.

So if it affects you, jump on the website, have a look. But anyways, but just want to take you through…and really understand the implications of the changes in lending criteria. Because effectively lenders now are moving from what used to be a 100% 6% coverage. In other words, you needed to have the rent cover the mortgage a 100% based on a mortgage payment of 6%. That’s what it used to be.

Where it’s moving to now is actually where it’s going to 145% at 5.5%. Now, different lenders have different criteria but let’s have a look at an example, because if you’ve ever looking for a 100,000 buy-to-let [[00:01:00]], $100,000 buy-to-let you’re going to buy and you want a 60% lending, or £60,000 mortgage. That £60,000 mortgage multiplied by 5.5% is going to cost you 275 per month,

Now, it doesn’t matter actually. This is for the calculation of the mortgage affordability, to what loan-to-value you can get. It doesn’t matter whether they’re charging you 3%, they’ll calculate at a 5.5%. So 275 and then we’ll take that 275 and multiply it by 1.45 times, which gives you a rent required on that £100,000 property of 400 per month to get a £60,000 mortgage.

Now, if you want a £70,000 mortgage, or 70% loan-to-value, you need 465. 80%, you need 531. To give you an idea against old times at a 100% coverage, 6%, you needed 300.

So that’s significantly more 80% and we used to be able to get 80% at 100% no problems whatsoever based on 300 rent. So now it’s going to be a lot harder to get and the interesting thing with this is we haven’t even come into contact…we haven’t even thought about or spoken about the debt-to-income restrictions, especially if you got more than four properties. And for most of this, we want to build a portfolio. We want to build that 7 to 10 properties by the time we retire. So it is going to affect us. So this is one bit of legislation. That’s another bit of legislation I’ll cover in another video.

Now, how does this affect you? If you buy something now, it’s probably fine because your cash flow is already going to reflect it.

Your mortgage broker is always going to know that but if you bought pre [SP] the changes and you expected to get a 75% mortgage, then what may happen is your loan-to-value drops.

The question is when loan-to-value drops, you need to put a bigger deposit in. So can you afford that deposit? If you can’t, speak to somebody who knows what they’re doing. Speak to your broker, give the team a call. Do something, the earlier the better [[00:03:00]], to overcome that. Okay, guys. Have a great day.

Live with passion.

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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