Top slice mortgages may help Oxford investors

Which? – the consumer organisation - says a handful of buy to let mortgage lenders have found a way of helping so-called ‘portfolio landlords’ to borrow more than they might have expected under tough new regulations.

Last month the Prudential Regulation Authority tightened the criteria which individual lenders had to use when handling applications from portfolio landlords - that is, those with four or more buy to let properties. 

But now the Which? Reports that “a handful” of lenders offering ‘top slicing’ deals, which allow landlords with low rental yields to make up their shortfall through other income. 

“Top slicing takes a landlord’s personal income, such as their salary or pension income, into consideration when assessing their affordability, rather than just looking at the profitability of their property portfolio. Top slicing is good news for landlords buying higher value properties which might have lower rental yields, as it allows them to use external personal income to bridge any shortfall” says a statement from Which? 

With Oxford prices rising again over the last 12 months by around 6%, and average Oxford homes costing £414,817, Oxford offers lower rental yields over the initial 3 to 5 years following purchase.  As a result, ‘Top slicing’ products would appear highly relevant for landlords aiming to increase their investment in Oxford property.

The consumer group says currently the lenders who undertake this are Aldermore, Barclays, Bluestone, Clydesdale Bank, Coventry, Mansfield, Metro Bank, NatWest, Vida and Virgin Money.

However, because of the restrictions imposed on most lenders by the new PRA criteria, some 14 companies have pulled out of the portfolio landlord market completely, says Which? This includes Santander, the TSB and the Post Office.

Oxford Homeowners and their £2.78 billion Debt

The housing and mortgage market has shown a noteworthy resilience. There has been a notable improvement of macro-economic conditions - in July, for example, it was announced that we are witness to the lowest levels of unemployment for nearly 50 years. Furthermore, despite the UK construction industry building 21% more new properties than last year, there has still been a disproportionate increase in demand for housing.  Repossessions too are also at an all-time low at 3,985 for the last Quarter from a high of 29,145 in Q1 2009. All these things have resulted in property values in Oxford being 6.4% higher than a year ago according to the Land Registry.

So, what does all this mean for the homeowners and landlords of Oxford, especially in relation to property prices moving forward?

One vital bellwether of the property market is the mortgage market. The UK mortgage market is worth £961,653,701,493 (that’s £961bn) and is representative of 13,314,512 mortgages (the UK’s mortgage market is the largest in Europe in terms of amount lent per year and the total value of outstanding loans).

Uncertainty causes banks to stop lending – it took a few months throughout the autumn of 2007, before the credit crunch started to hit the Oxford property market, but in late 2007, and for the following year and half, Oxford property values dropped each month causing Oxford property values to drop by 22.9%

Thankfully, after a period of stagnation, the Oxford property market started to recover in 2011 as certainty returned to the economy and Oxford property values really took off in 2013.  Throughout 2016, we saw a return to realistic and stable medium-term property price growth, and now property prices have recovered in Oxford and are now 85.6% higher than they were in 2009.

During the summer of 2017, with the Conservatives having been re-elected on their slender majority, the Oxford property market has experienced some softening, but now appears set to avoid the negative growth experienced in London.  There has been some aggressive competition among mortgage lenders, which has driven mortgage rates down to record lows, which is good news for Oxford homeowners and landlords with the rates on new deals at the lowest they have ever been.  For example, last month, HSBC launched a 1.69% five-year fixed mortgage!

Since 1977, the average Bank of England interest rate has been 6.65%, making the current rates a of 0.25% very low indeed – in fact it is a 323-year record. Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.52% in the autumn of 2012 to the current 59.3%. If you haven’t fixed – maybe you should follow the majority?

In the Oxford postcodes of OX1 to OX4 & OX33, if you added up everyone’s mortgage, it would total £2,785,488,264.  If Bank of England rates returned to their trend rate of 6.65% current Oxford borrowers would have to find £178.3m more to just to keep-up their payments

In my opinion, interest rates can only go one way from their 300-year ultra 0.25% low level.  Maybe, just maybe, you might want to consider taking some advice from a qualified mortgage adviser to lock-in the historically low rates.