Concerning new claims from crowdfunding platform Property Partner suggest that tighter lending criteria from the Bank of England could have a severe impact on deposits required from buy-to-let landlords.
The platform indicates that would-be investors in over two-thirds of the UK’s major towns and cities could be forced to put down deposits of at least 40%.
Rising ratios
Property Partner has forecasted that interest coverage ratios of 145% could well be enforced. Ahead of the Bank of England’s Financial Stability Report, some providers are imposing stricter rules. These include Barclays and Nationwide, who have already set their interest coverage ratios to 145%.
Should other lenders follow their lead, purchasing a buy-to-let investment with a mortgage in over two-thirds of towns and cities will be impossible without a 40% deposit.
Worcester came out on top of the list with highest financial barriers to entry, should Interest Coverage Ratio be set at 145%. This increase would see landlords permitted to put down a deposit of 61% for a typical property. In monetary terms, this equates to £115,000.
Landlords in the commuter belt, in locations such as Chelmsford, Bedford and Reading, would also face much stricter lending restrictions.
Landlords warned over purchasing deposit hikes
Buy-to-let blow
Dan Gandesha, CEO of property crowdfunding platform Property Partner, observed, ‘buy-to-let landlords have had it tough of late with successive assaults on their potential income. The stricter lending rules expected to be introduced by the Bank of England follow April’s Stamp Duty surcharge of 3% for buyers of second homes and buy-to-lets. And from April 2017, the gradual withdrawal of mortgage interest tax relief will put further restraints on landlords’ profits.’[1]
‘This lending squeeze will only increase the financial barriers to entry to the market, restricting access to only cash buyers or those with hefty deposits and potentially forcing some existing landlords to sell up. Highly-leveraged landlords seeking to remortgage could face a nasty shock, if their bank tells them they no longer qualify for the same loan to value mortgage,’ he added.[1]
[1] http://www.propertyreporter.co.uk/landlords/landlords-face-being-locked-out-by-post-brexit-rule-changes.html