Is BTL lending getting tougher?

If the new buy-to-let tax rules which come into force this month weren’t bad enough, the Bank of England’s tightening up of mortgage lending criteria will come as a further blow to existing and potential new landlords.

Over the last 12 months, landlords have faced a flood of new rules and regulations and the latest initiative means there will be tougher lending criteria applied to all landlords that are looking to purchase a buy-to-let property.

The Bank of England hopes that the stricter lending criteria will reduce the amount of buy-to-let lending by 10% to 20% in three years’ time. Until now, landlords have typically required a 25% deposit to get a buy-to-let mortgage, as well as rent to cover their monthly mortgage payments by 125%.

The Prudential Regulation Authority – which is the Bank of England’s arm that regulates the financial sector – wants lenders to make more stringent income checks on landlords, to ensure they can afford the mortgages on their rental properties. It also wants banks to test whether landlords can still afford the monthly payments on these loans if interest rates rise.

Jane Morris, Managing Director of comments: “This new lending criteria is a move at slowing down the booming buy-to-let market, which has seen a rush of landlords purchasing property to beat the stamp duty rise, which comes into effect this month.  We have seen a sharp increase in the number of landlords placing properties with us over the last six months and since January, landlord sign ups have increased by 50 -60%.  

However, the market is very likely to slow down over the next few months, with Britain’s 1.8 million landlords now facing the brunt of the increased taxes and new mortgage restrictions.  The buy-to-let market provides the UK with essential housing for over 2.5 million tenants and has been unjustly targeted by the government.

Landlords will need to find ways to protect their profits and income.  Inevitably, we will see rent rises and many landlords will be reviewing their fixed costs.  It is certainly a good time to review lettings costs, as some landlords could make significant savings on their letting agent finder and fully managed fees.”

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BDC 305 Jun 2023