Multi-property buy-to-let owners face squeeze

Several news reports today have highlighted another strand of the government and Bank of England’s clampdown on the buy-to-let sector.

It’s a change that went largely unnoticed in a policy statement from the Prudential Regulation Authority in September, but will hit those with an existing portfolio of investment properties.

Under new rules coming into effect in September 2017, financial institutions offering loans on new buy-to-let property to anyone with four or more properties will have to assess all their portfolio, says the Financial Times.

In part, the move is because “mortgage arrears rates are higher when landlords own more properties”, says the paper, which adds to risks in what is already seen as an overheated segment of the market.

Ray Boulger, the technical manager at mortgage broker John Charcol, said the change will mean fewer loans being offered to multi-property owners as the additional resources involved will make it unprofitable for the lender.

Wither few loans around, interest rates for landlords with larger portfolios could be increased by “a quarter or half percentage point”.

The change is also in part because tax relief changes coming over the coming years “might put landlords under water on some of their properties”, adds the FT.

However, some experts believe it will not have too big of an impact as the buy-to-let market is filled with specialist lenders, such as Paragon and Aldermore

Steve Olejnik, of Mortgages for Business, told the Daily Mail there are “plenty of specialist buy-to-let lenders with robust underwriting standards already and their processes are likely to change very little”.

In addition, the new Bank of England rules will mean lenders are required to “stress test” loans at interest rates of 5.5 per cent and ensure rental cover on mortgage repayments of at least 125 per cent.

Some are already asking for higher rental cover of 145 per cent.

According to an FT calculator, on an average two-bed home in Dartford, Kent, currently costing £270,000 and worth £996 a month in rent, this higher rate would limit the loan size to £150,000.

After the change, a landlord would need to stump up equity of £120,000 to buy the property, in addition to hefty second-home stamp duty of £11,600 and other buying costs.

Read more at The Week