Simply Business - Insurance for your business

Call Us0333 0146 683
Our opening hours
Knowledge centre

The new buy-to-let lending rules make it harder for landlords to obtain a mortgage

2-minute read

The new buy-to-let lending rules make it harder for landlords to obtain a mortgage
Mollie Millman

Mollie Millman

7 October 2016

Following months of uncertainty, landlords now know that it will soon become harder to obtain a buy-to-let mortgage.

For some, it may mean that they won’t be able to get a mortgage - or even remortgage - at all.

  • Best buy-to-let mortgages in the UK

Tighter lending controls announced

It follows the regulator’s announcement to introduce tighter lending controls on landlords from the beginning of next year.

The regulator has finally confirmed the new rules, which may mean investors need to find larger deposits or increase the rents that they charge their tenants before they can take out a loan.

David Hollingworth, of mortgage brokers London & Country, explained that the rules could prove a challenge for landlords hoping to invest in the buy-to-let sector.

He said: "Many are not going to be able to find the extra money they need for a deposit or increase rents by enough to cover the shortfall."

Safeguarding against higher interest rates

The regulator - the Prudential Regulation Authority - is hoping that the new rules will ensure that landlords can afford their loans if interest rates rise.

Previously, landlords only needed to prove that their tenants were paying enough rent to cover their monthly mortgage payments. Most lenders required that the rent was at least 125 per cent of the monthly payments.

But in anticipation of the rules, some lenders began increasing this percentage to 145 per cent.

Stress tests come into play

They have also been amending their lending criteria to include ‘stress tests’ to check that landlords can still afford their loans if interest rates rise from typically 3.5 per cent today to more than 5 per cent.

The new lending rules for landlords mean that from the beginning of next year, the regulator will make the stress tests more difficult, increasing the level to 5.5 per cent.

Ray Boulger, of mortgage brokers John Charcol, said: “All buy-to-let lenders will have to use this minimum rate of 5.5 per cent from 1 January 2017 except for mortgages with a fixed rate for at least five years.”

However, he added there was a small glimmer of hope for landlords, saying: “The PRA has left the minimum acceptable rental cover percentage at 125 per cent.”

“Therefore, although lenders will have to use a minimum interest rate in the rental cover calculation, they still have flexibility on whether to continue using 125 per cent, as many do, or some percentage above that.

“A lender whose preference would be to go to 145 per cent cover, as some already have, to reflect the income tax charges, but keep the interest rate used at five per cent could achieve the same result by calculating the rental cover at 132 per cent based on a rate of 5.5 per cent.”

What do you think about the changes? Let us know below.

Get set with tailored landlord cover

Over 200,000 UK landlord policies, a 9/10 customer rating and claims handled by an award-winning team. Looking to switch or start a new policy? Run a quick landlord insurance quote today.

Start your quote

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

Find this article useful? Spread the word.


People also liked

Landlords could be targeted in new capital gains tax raid.

19 November 20202-minute read

Landlords could be targeted in new capital gains tax raid

Landlords could be hit by another massive tax raid, as the Office of Tax Simplification outlines its recommendations for an overhaul of…

Read more

Keep up to date with Simply Business. Subscribe to our monthly newsletter and follow us on social media.

Subscribe to our newsletter


Popular articlesBusiness resources from FarillioGeneral businessGuestInsuranceLandlordLandlord resources from FarillioLegal and financeMarketingNewsOpinionProperty maintenanceTradesmanCovid-19 business support hub


6th Floor99 Gresham StreetLondonEC2V 7NG

Sol House29 St Katherine's StreetNorthamptonNN1 2QZ

© Copyright 2021 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.