For many landlords, 2016 was a very difficult year because of the number of legislation changes made to the buy-to-let and financial sector by the government and legislative authorities We’ve already touched on a number of regulation changes, including the introduction of a minimum bedroom size in rental properties, the banning of letting agent fees in England, and new buy-to-let tax regulations, but now, new figures show that buy-to-let mortgages are being pulled by banks at the quickest rate since 2009, making it harder for landlords to expand their property portfolio and increasing the stress levels of buy-to-let owners even further.
According to figures by Moneyfacts, the number of buy-to-let loans available to landlords has fallen by 5% over the past month, a decline which hasn’t been experienced since the banking crisis of 2009. The statistics show that the total number of buy-to-let mortgages available on the market has fallen from 1,482 to 1,408 which represents the most substantial fall in numerical terms since March 2009, when banks were reducing the availability of mortgages due to the banking crisis and recession.
Moneyfacts said that the decline was extremely unusual for December, as commonly banks don’t vary their deals as often when compared to other months in the year.
With banks cutting the availability of their buy-to-let mortgages, many landlords are finding it difficult to find a mortgage which suits their needs, and new financial regulations mean the mortgages that are available are much more difficult to obtain. As of 1 January 2017, lenders now have to adhere to much tougher regulations imposed by the Prudential Regulatory Authority; these regulations mean banks now need to ensure that landlords can afford a mortgage by applying a stress-test on the mortgage. As a result, many potential buy-to-let landlords are restricted in how much they are able to borrow, with some buyers potentially prevented from borrowing anything at all.
If that wasn’t hard enough, banks have also raised the percentage of rent a landlord must take in each month in relation to their mortgage costs. For example, before 1 January, the standard rate was 125%, but that figure has now been raised to between 135% and 145%. Consequently, many landlords will now either need to borrow less or pass on the increasing costs to tenants through rent rises.
In addition to the regulation changes in 2016, further financial legislative amendments are planned for 2017. In April, higher-rate taxpayers will not be allowed to deduct their mortgage costs from their overall income before tax is calculated, with these taxpayers receiving a basic-rate tax credit at 20% instead. As a result, many experts believe this move will leave landlords in danger of losing money, with analysts expecting landlords to sell properties to ensure they maintain their financial security.
In September further financial regulations will come into force, forcing banks to look at a landlord’s entire buy-to-let portfolio if s/he owns more than 4 properties.
Are you a buy-to-let landlord or perhaps a property owner looking to take your first step into the buy-to-let market? If so, the lettings team here at CPS Homes can help answer any questions you may have. To find out more please do get in touch today, and if you’re looking for a buy-to-let investment, browse the range of properties we currently have for sale across Cardiff.