Specialist Lending - May 2017  

What you need to know about complex buy-to-let

This article is part of
Changes in the complex buy-to-let market

Generally, each MUFB has the following characteristics:

  • Each unit is let on its own AST agreement.
  • Private areas that are the personal space of each unit to which no one else has access.
  • Separate entrances for each unit.
  • Some have common areas such as hallways and gardens.

Semi-commercial properties

A semi-commercial property (SCP) is more commonly known in the industry as “mixed use” property. Examples of an SCP include a property such as a shop on a high street which has a flat or flats above it, or a residential element to a commercial property, such as a groundskeeper's lodge, or a bed and breakfast where the owners live in the building.

SCPs are exempt from stamp duty surcharges, because the entire property is not classed as residential, even though it has both a residential and commercial element.

These and other complex buy-to-let products, as with the HMO, can be subject to additional bureaucracy, are not as simple to underwrite, survey and lend upon as a single-owner, standard flat or house.

For example, these complex buy-to-lets often come with much higher maintenance and mortgage costs, which could add to lenders' concerns about whether prospective landlords can afford to take out the mortgage on the property.

On top of these are other concerns, as Mr Landy outlines. There could be a complication with the borrower themselves. "For example, they are a limited company, or an expat or foreign national.

"They could have more than four properties and be considered ‘professional landlords’ with additional PRA checks needed, or be falling foul of higher rental coverage ratios that the High Street have been implementing."

Then there could be concentration limits. Mr Landy explains: "This means the maximum number of properties in a single block, or the maximum number of properties on one street, that a lender will lend on."

According to Charlotte Nelson, finance expert at Moneyfacts: “The tougher affordability rules which have reduced the amount landlords can potentially borrow are being felt in the market. 

“This extra regulation means borrowers will face added checks and questions about their finances.” 

Add to this tighter lending criteria since the 2008 financial crisis, the 2014 Mortgage Market Review and the 2016 Mortgage Credit Directive, some respondents to this guide have commented that the government itself is creating an “increasingly restrictive environment for landlords”, as John Goodall, chief executive and founder of Landbay has expressed it.

Multiple properties

But even for investors with multiple 'vanilla' properties, buy-to-let has become more difficult. Mr Smith-Thompson explains: “If a client has multiple buy-to-let properties, then things will naturally get more complicated.

“The adviser or master broker will need to guide the client on the wider tax implications of taking this investment route.

“This can, in turn, lead to introducing the concept of a limited company structure, adding an extra layer of administration processes and systems to the case.”