One of the biggest challenges landlords face when it comes to buying their first buy-to-let property, or expanding their buy-to-let portfolio, is obtaining a mortgage from a lender. Whether it is credit checks, timescales or the stress-test, many landlords have had a bad experience when it comes to obtaining finances for their buy-to-let ambitions, and it looks like it’s only going to get harder for them.
The Bank of England watchdog, the Prudential Regulation Authority (PRA) has revealed that it is introducing new lending rules from January 2017, and has told lenders (such as banks and building societies) that it has until January to introduce the new regulations; regulations which are expected to make obtaining a buy-to-let mortgage much harder.
Under the new requirements being introduced in 2017, lenders will have to ensure that landlords have higher levels of rent relative to their mortgage costs, while all new buy-to-let mortgages will need to be stress-tested at a rate of 5.5%. What’s more, landlords with four or more properties will be required by the PRA to disclose more information about their debts and incomes. The PRA did stipulate however, that lenders will be able to factor in rent rises of up to 2% a year when it comes to deciding whether a landlord can actually afford a property; before, lenders were not allowed to factor in potential rent rises when making a decision.
According to the PRA, the new regulations will stop additional-rate and higher-rate taxpaying landlords from deducting their mortgage interest from their rental income before their tax bill is calculated. As a result of these new rules, landlords with more than one property held in their name, and landlords with large mortgages, are in danger of making ongoing losses.
The Bank of England also added that all lenders will be required to check that landlords receive a minimum of 125% of their mortgage costs through rental income, although this threshold is almost always followed by lenders and borrowers already. However, because lenders will be able to assume that all landlords are higher-rate taxpayers, basic-rate taxpayers, who are exempt from the new PRA regulations, could miss out on mortgages. What’s more, the new changes will likely mean lenders need 145% of their mortgage costs covered by rental income, and not 125%.
The PRA doesn’t want to make the mortgage ‘stress-test’ more difficult with these changes, rather they want to ensure that lenders are not relaxing any of their requirements. However, the changes will make it harder for landlords who own one or more properties to obtain mortgages as they will be subject to more stringent regulations.
Many property experts have said that the new rules are unlikely to have any substantial effect, as many lenders are already complying with the new rules. However, experts have suggested that marginal lenders may start to tighten their lending requirements, meaning some landlords may find it harder to obtain buy-to-let mortgages.
If you’re looking to purchase a buy-to-let investment in Cardiff, as one of Cardiff’s largest letting agents, we have hundreds of properties available across Cardiff in many ideal locations such as Cathays, Roath, Cardiff Bay any many more. To find out how we can help you, please get in touch today on 02920 668585, email email@example.com or pop into our offices based in Cathays, Cardiff Bay or Roath.