New buy-to-let lending rules will be introduced from September, so what should landlords keep in mind ahead of the crackdown?
- What’s the nasty surprise for buy-to-let landlords that the government has quietly announced?
- Best buy-to-let areas in the UK - updated for 2017
- A guide to tenancy deposit protection for UK landlords
- What is landlord insurance?
George Osborne may no longer be in situ, but planned landlord rulings are still set to take effect from September 2017, with an ever-tighter focus on buy-to-let mortgage and lending requirements.
In a bid to reduce irresponsible lending in the sector, the Bank of England (specifically the Prudential Regulation Authority) will place new, tougher requirements on lenders from September, including the interest rates-dependent ‘stress test’ on new mortgage applications.
Lenders will also need to review a landlord’s entire property portfolio when making a decision on their single property application, which will hit hard on multi-property landlords, especially if one or two of your properties aren’t turning as much of a profit.
Lenders will be looking at your whole buy-to-let portfolio
From September, when making an application for a buy-to-let-mortgage on a new rental property, the lender will need to to look at your entire property portfolio, meaning that one bad, non-profitable, apple could rot the whole barrel.
“The rules say the whole portfolio must be viable,” Ray Boulger, from broker John Charcol, has told the Telegraph. He goes on, “Let’s say you have ten properties and eight are generating rental income in excess of mortgage payments and the other two are not, but the shortfall is covered by the other eight. Is that going to be acceptable? For some lenders it will be, for others it might not be.”
The new stress test on buy-to-let mortgages
2017 has seen new rules regarding stress tests on buy-to-let mortgages, causing further issues for landlords who’re looking to expand or find new mortgages from this autumn. The stress test forces lenders to check a borrower can afford repayments, if interest rates were to hit 5.5%.
They may also ask to see a business plan. And it’s these new strips of red tape combined that means lenders may retreat from selling buy-to-let mortgages, putting UK landlords in a potentially impossible situation.
What’s the advice for buy-to-let investors?
Brokers are advising landlords to get their mortgages sorted and spring-cleaned over the summer, ready for the new rules to hit in September. If you’re operating through a limited company, or plan to be, buy-to-let mortgage deals have doubled in the last year, so shopping around now could be helpful. Limited companies aren’t right for everyone though, and research is critical.
What’s behind this new buy-to-let crackdown?
The changes are all part of former chancellor George Osborne’s focus on buy-to-let landlords, designed to turn people off investing in the rental property sector.
This, in theory, is hoped to give first-time buyers a better chance of getting on the property ladder, but experts are warning of a backfire. The prediction is that landlords will simply raise rents to make up the difference, and so the cycle continues.
So is buy-to-let worth it? With new tax rules around additional Stamp Duty and lower tax relief, it’s already a hot point of debate. The Council of Mortgage Lenders (CML) has already hit property headlines with figures in June, reporting buy-to-let purchases averaging 6,000 a month this year, half of where they stood for the same period in 2016.