As we are well aware, the UK Government has been targeting landlords for the past few years and the tax changes announced in last year’s budget will be phased in from this year. See previous post and video for more information.
Buy to let mortgage affordability has been tightening over the past two years, however, now it is going to be tightened even more. As well as tighter regulation, the lenders will be requiring even more information that they have done in the past which is likely to include looking at tax in addition to the number of properties owned; existing mortgage debt; income and bank statements. The affordability will be tighter for those who are higher rate tax payers or likely to be in the near future.
In addition the mortgage interest rate stress test is likely to use figures over 5.5%, indeed many lenders are already using 5.9% as their stress test interest rate level. What this means is that whatever mortgage interest a lender is charging your finances will be tested as if you were going to be paying 5.9% interest. Added to this is the majority of lenders are now requiring rental income to be 145% of the monthly repayment based on the stress test, instead of the previously used 125%. This is likely to mean that some, if not many landlords are going to struggle to remortgage every two to three years (or at the end of a discounted period) and unlikely to be able to release equity to buy more properties. Its not so much the 145% that is a problem because one would hope that rental income would be much greater than the 125% used previously anyway. It is the rise in the interest rate stress test in addition to the 145% that is more likely to impact on landlords.
Tenants will of course be paying the price of these new rules and rents, that were already increasing are likely to increase at a much faster pace than previously. For many landlords who provide good accommodation at a fair rent (I include myself in this bracket) and who have invested in property to provide a pension for the future or additional income these far reaching changes do seem very unfair. As more and more people are in need of rental property the demand is not likely to go down, in fact it is likely to increase if landlords need to sell property as this will increase the number of tenants looking for homes. A system that was working for the majority is being penalised for its success it would seem!
If you would like to look at examples as to how this might impact on you or your tenants please take a look at my video on Youtube.
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