George Osborne’s legacy will continue to hammer landlords later this year as new rules on buy-to-let mortgage lending come into effect.
The Prudential Regulation Authority, part of the Bank of England, are set to force lenders to change the way they lend to buy-to-let landlords in an effort to reduce irresponsible lending in the sector.
From September lenders will have to look at a landlord’s entire property portfolio when deciding on a mortgage for a single property. This could affect your application, particularly if some of your rentals are more profitable than others.
Trouble ahead
“The rules say the whole portfolio must be viable,” Ray Boulger of mortgage broker John Charcol told the Telegraph.
“Let’s say you have 10 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.”
Another problem is the stress test on buy-to-let mortgages. This year new rules were brought in that meant lenders now have to apply a stress test to new mortgage applications to make sure the borrower could afford the repayments if interest rates hit 5.5%.
Lenders may also want to see proof of rental income and a business plan before they decide on an application.
The increase in red tape and paperwork could mean some lenders simply stop providing buy-to-let mortgages. This would mean some landlords could find it a lot more difficult to get a mortgage deal.
What to do now
Mortgage brokers are advising that landlords sort out their mortgages over the summer, before the new rules come in from September.
You can see the latest rates over at the loveMONEY mortgage comparison centre.
Buy-to-let crackdown
The change to buy-to-let mortgage rules is part of the former chancellor George Osborne’s clampdown on buy-to-let landlords.
These are intended to make investing in rental properties less attractive, so that first-time buyers would have more of a chance to purchase the starter homes that are being snapped up by buy-to-let investors.
But, it could well backfire with some experts saying the changes will mean landlords raise rents to cover their increased expenses. That would make saving for a deposit on a first home even harder for people in rented accommodation.
The number of buy-to-let property transactions has collapsed this year thanks to new tax rules meaning they attract additional Stamp Duty and less tax relief.
The Council of Mortgage Lenders (CML) reported last month that buy-to-let purchases have averaged 6,000 a month this year, half what they were iover the same period in 2016.