Landlords 'could need 40% deposit'

Landlords in London and the South East could be required to put down a 40 per cent deposit in order to secure a mortgage.

This is according to new research from Countrywide, which suggests that planned new powers for the Bank of England could significantly increase the deposit requirements for buy-to-let investors.

The property services group says the powers could mean that lending criteria are further tightened, with ‘stress tests’ requiring borrowers to show that their lettings income is much greater than the interest payments on their mortgage.

Currently landlords are generally required to demonstrate that their lettings income covers at least 125 per cent of the mortgage interest. But Countrywide says the new plans could mean that figure would rise to 165 per cent as stress tests require the landlord to be able to cover the mortgage at higher interest rates.

The group says this means landlords with new mortgages could be required to put down an additional £40,000 deposit on average.

Countrywide group commercial director Nick Dunning said: “Stress testing of new loans for investors has the potential to increase entry barriers for would-be landlords. It will primarily affect areas in the South of the country and areas where yields are lower.

“If the proposals are implemented, would-be landlords will have to put down increasingly larger deposits to meet more stringent lending criteria. The high value nature of parts of London and the South East mean many landlords will find themselves having to put down deposits upwards of 40 per cent.

“While lenders need to ensure repayments are affordable to the borrower, they must ensure they strike a balance between affordability and viability.”