As I know first hand tenants aren’t always the most reliable so a buy to let mortgage with payment breaks can be very helpful.
So why is it Buy to let mortgages with payment breaks are not easy to come by? As well as a Landlord; I’m a professional Mortgage Broker too and in this article, I’ll explain why and how there are options open to you.
Lets start with the Buy to Let Mortgage Lender’s perspective. Historically, the Buy to Let Mortgage Lenders practised assessments that were resilient for landlords to weather the storm. They worked on two fronts: earned income and surplus rental coverage. As the competition has increased both of these checkpoints have been stripped back. Even the most vanilla mainstream brands such BM Solutions (HBOS), Godiva (Coventry), Leeds BS and TMW (Nationwide) have removed their minimum earned income requirement the first layer of protection for rental voids. Secondly, most Buy to Let Mortgage Lenders run a reduced rental coverage on 5-year fixes i.e. eroding the surplus coffers.
This lowering of standards has encouraged more Mortgage Applicants who may do not have as much collateral in the bank to ride out rental voids.
A prudent counterbalance would be to offer a facility reduce mortgage payments at those critical times such as a tenant not paying or at the point when urgent reforestation is needed. To allow this mechanism to work the answer is to simply collect overpayments on the mortgage when the property is let and use the surplus in a moment of difficulty.
So why don’t the lenders appreciate this after all its in their interests to keep things running smoothly?
Well if I start by saying a large segment of the buy to let market is populated by Mortgage Lenders that sell their mortgages on to the wholesale money markets so are not in a position to offer a post-completion sevice such as payment breaks.
From the Buy to Let Mortgage Lenders that hold on and service the mortgages themselves there needs to be a back office system that can handle variable payment collection and an administration support unit to deal with the requests. This comes at an inevitable cost and needs to weighed against the benefit to the Buy to Let Mortgage Lender. Flexible payments are common place in the Residential market so if a Mortgage Lender also offers these, and systems can be shared, then its more likely to appear on the Buy to Let side too.
All that said there any still a pocket of payment break Buy to Let Mortgage Lenders around and we will be delighted to talk through their suitability with you.
Niche Advice arranges mortgages with payment breaks if they are suitable.