Shortly after landlords were left reeling from the stamp duty rise, new Bank of England proposals will change the ways that landlords handle their properties in the buy-to-let sector.
Landlords are facing several new rules and regulations, with the latest being new curbs on their ability to borrow, as the Bank of England proposed affordability checks and interest rate ‘stress tests’ for those looking to buy a property for rent. This tougher lending criteria will make it harder for many to obtain a mortgage for their buy-to-let properties.
The Bank of England’s Prudential Regulation Authority (PRA), which monitors the soundness of banks and lenders, wants lenders to assess whether the monthly rental income from the property is enough to cover the mortgage, or whether the landlord has enough money – along with rental income – to keep paying the mortgage. The PRA also wants banks to test whether landlords can still afford the monthly payments on these loans if interest rates rise.
Until now, landlords have typically required a 25% deposit to get a buy-to-let mortgage. They also needed the rent to cover their monthly mortgage payments by 125%.There was some good news for landlords: if you are not increasing borrowing, the test will not apply.
So, why the change?
The new rules come amid fears that the booming buy-to-let market is overheating. Lending in this part of the sector has soared and could lead to the wider property market collapsing. Figures published by the National Associated of Estate Agents found that 85% of its members have seen a rise in the number of landlords flooding the market ahead of tax hikes being introduced.
Chancellor George Osborne has suggested that curbing buy-to-let will help more first-time buyers get on the housing ladder. It is hoped that the stricter lending criteria will reduce the amount of buy-to-let lending by 10-20% in three years’ time
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