By Louise Misiewicz
Will buy-to-let landlords struggle to get mortgages in 2017?
Are you aware of changes in lending criteria now in force?
Our main clients are buy-to-let landlords and property investors in the UK, so recent industry news highlighting that mortgages for buy-to-let landlords are going to be subject to stricter lending criteria in 2017 led to a number of calls and emails from concerned investors to myself and my team recently.
Although there has been a dramatic fall in the number of buy-to-let mortgages being taken out in the UK since last April, (some industry sources have claimed a 5% in the last month alone) I believe that this tougher stance on property investors regarding lending criteria also highlights worries around rising rates.
As leading property tax experts in the UK, my team of accountants and wealth planners here at Optimise are heavily focused on monitoring the property investment industry, to ensure that our clients are well-informed, up-to-date on legislation, and fully educated, to maintain profitable property portfolios.
What are the changes in mortgage lending criteria in 2017?
The Bank of England’s Prudential Regulation Authority introduced stricter standards and affordability assessments on 1 January of this year, to make sure borrowers can cover the cost of their mortgage in the event of an interest rate increase
Mortgage lenders are now required to set a minimum borrower rate of 5.5% during the first five years of a buy-to-let mortgage contract when assessing affordability levels from now on.
They will also have to take into account annual rent rises of 2% when assessing whether a buy-to-let landlord can afford a property. Furthermore, portfolio landlords with four or more rental properties are now subject to stricter checks on income and debt from September.
The number of buy-to-let mortgage applications has been steadily falling throughout last year, with the stamp duty increase introduction in April. We have written several article on this subject as shown below:
- 3% SDLT for second houses
- Delayed completions
- Reducing SDLT on removable items
- Beat SDLT and build your own home
- Reduce SDLT when buying properties – buy the company
Our clients have been kept fully up-to-date, of course.
I wrote this helpful article at the start of the year on opportunities for property investors in 2017.
How have the changes affected buy-to-let investors so far?
I’ve seen that in the last year, several lenders have increased the rental income a landlord must bring in relative to their mortgage costs.
While the standard interest coverage ratio was 125%, many lenders have now raised this to 135% or even 145%, resulting in some portfolio landlords having increase the level of deposit they invest.
I would stress that although the mortgage lending criteria changes are important and should be carefully considered by property investors during 2017, it’s worth remembering that the slowdown in the property investment market is not terminal, and with good property tax advice, portfolios will remain healthy.
I wrote this useful article about how buy-to-let landlords can diversify their investments in other areas.
Will the changes cause many buy-to-let landlords to sell up?
According to the Council of Mortgage Lenders, buy-to-let landlord borrowing in October 2016 was 21% down from the same time the previous year at £3 billion, but I don’t believe that the property investment industry in the UK is dying. Far from it.
The mortgage lending criteria changes now in place in 2017 will just mean that portfolio landlords will need to be even more professional, prepared and passionate about running profitable portfolios – and this, of course, is where I and my team can advise and assist. Get in touch here to find out more.
This detailed recent article will also provide some useful background on property investment news in 2017.
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