Could become a reality
As the third in the trio of bad news for property investors, lenders are tightening their regulations on buy-to-let mortgages after the Financial Policy Committee (FPC) highlighted buy-to-let as a high risk to overall financial stability. It’s a concern that in the future buy-to-let investment could only be available for those with much deeper pockets, as the government press forward with measures to dampen growth in this sector.
Lenders are shying away from buy-to-let
The exponential growth in buy-to-let investment in recent years, has led to the FPC identifying it as a high risk sector. Whilst the FPC have not curbed lending just yet, they have communicated they are poised to act if necessary.
Subsequently, lenders have started to make changes to their policies in efforts to comply in advance.
In recent weeks, several lenders have amended the “multiple” between the rental income and the monthly mortgage cost, used to assess whether they can issue a mortgage, and if so, at what rate.
As an example, a high-street lender typically requested rental income to be 125 percent of the monthly mortgage interest, yet their new arrangement is 135 percent. More lenders are expected to follow suit with also increasing their income multiples and this adds to the already tight regulations around affordability that are now in place.
All in all, this means borrowers are likely to require higher levels of equity to be able to obtain a buy-to-let mortgage at an affordable level of interest.
“The market is moving towards a situation where only those with a 50pc deposit are likely to qualify for a loan.” Mark Harris, SPF Private Clients
The impact for landlords and tenants
Tenants are likely to be affected as landlords will have no choice but to increase their rent to cover additional costs, related to both proposed new mortgage policy and the increased costs on entry to investment, referring to the recent 3% Stamp Duty charge on buy-to-lets and second homes, from April 2016.
For aspiring landlords, all the recent news will certainly deter a handful of people from choosing property investment as the best place to spend their cash. Those who decide to proceed though will need to ensure their investment can be profitable, factoring everything into account.
For existing landlords, any changes to mortgage policy can also have a drastic effect when it comes to remortgaging.
With lenders under pressure to strictly assess affordability on any mortgage application, it could be the case that a landlord that secures a fixed rate now, may not qualify when they need to remortgage, say in 2 years time.
This could force landlords onto the Standard Variable Rate (SVR) of the lender, which is invariably much higher, and could in fact wipe out rental profits completely, in some cases.
For anyone considering property investment now, it is essential to take guidance and advice from professionals who understand, in depth, the effects of recent changes to this sector.
Dental & Medical Financial Services are specialists in mortgage lending for doctors and dentists. Chris, our dedicated mortgage adviser can look at your current and future potential as an investor and provide advice accordingly. Call today.