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Property investors and landlords wishing to increase their property portfolio’s should act quickly to obtain a mortgage after the Bank of England warned the cost of borrowing is set to increase over the coming months.

Mortgage lenders have already been increasing rates in recent months, blaming rising costs and the weak economy for the increases, the result has left over a million UK homeowners facing higher mortgage rates.

The Bank of England’s quarterly credit conditions report has also revealed that there would be a marked decline of mortgage availability for borrowers with small deposits, as lenders become tougher over eligibility criteria for home-owner loans.

In the three months to the end of May, the BoE observed a significant decline in the proportion of mortgage approvals following the announcement of tougher borrowing criteria set out by mortgage lenders.

Despite the increase in borrowing costs, it is predicted the availability of mortgages will remain largely unchanged heading into the last quarter of the year, with the exception of high Loan-To-Value (LTV) mortgages, which many lenders view as being a risky proposition.

According to data released by the Bank of England, the typical rate on offer for a two-year fixed mortgage deal with a 10% deposit rose by 25% in April 2012 to 6.04% in May, the highest level seen since January 2011.

Mainstream Buy to let mortgage lenders are changing their products and lending policies as they prepare for the new rules to be implemented that will tighten up on the necessary criteria borrowers must meet, causing a stir in the market.

The Co-Op Bank announced this week that it was scrapping residential “Interest Only” mortgage products but the lender has confirmed that landlords can still obtain interest-only mortgage loans for the purchase of buy to let rental properties.

Platform will continue to offer interest only mortgages for the purposes of purchase and refinance for landlords, but has pulled all similar products for residential homeowners offered through the Co-Op, Platform and Britannia.

LloydsTSB also withdrew “Interest Only” residential home loans but similar “Interest Only” Buy-To-Let mortgage products for landlords will remain in place for the foreseeable future.

LloydsTSB have said that they intend to reduce loan exposure by cutting all UK mortgage lending by 3% stating that borrowing costs on the wholesale money markets were too high.
Instead, LloydsTSB want to raise more cash from their own savers to underwrite all forms of lending and want to raise deposits by 3% .

Banks, building societies and mainstream mortgage lenders tend to view the UK buy to let market as a business with rent from tenants used to underwrite interest payments and long-term capital appreciation, as the property increases in value, is accepted as a suitable repayment method.

Landlords can utilise Rent Guarantee insurance from specialist landlord service providers to ensure that their rental income remains uninterrupted and they can cover their Buy To Let mortgage payments.

Property investors and landlords don’t need to panic and should shop around for the best deal on the market. However, meeting the increased criteria could prove too much for some investors and they may be forced to seek alternative vehicles for finance or use alternative investment strategies such as Lease Options to control property.

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