Policy changes to increase costs for buy-to-let landlords

Undoubtedly, the current market is a tough one in which to be a buy-to-let let landlord. The number of measures aimed at curbing the market have led to many concerns that investors with lower profit margins could well end up making a loss.

Some could well be pushed out of the market completely.

Challenging changes

The introduction of the 3% stamp duty surcharge, alterations to mortgage interest tax relief and Right to Rent checks are just some of the measures that have impacted on landlords over the last year.

Now, the Bank of England’s Financial Policy Committee has been granted increased powers over the buy-to-let market.

John Heron, director of mortgages at Paragon, believes, ‘it is clear that this will need to be reflected in lender affordability assessments.’[1]

‘Government policy towards the private rented sector will increase costs for landlords. The Prudential Regulation Authority’s supervisory statement released in September this year is helpful in ensuring that lenders approach this in a consistent fashion,’ he continued.[1]

Affordability concerns

Paragon is the latest lender to make changes to its affordability assessment for buy-to-let mortgages, to take into account the increase in costs that some landlords will face as a result of the alterations in mortgage interest rate relief.

The lender is bringing in graduated interest coverage ratio, in order to tailor to each individual landlord’s tax status.

Landlords paying a basic rate of income tax will carry on being assessed at a ratio of 125%. However, landlords paying a greater rate of tax will be assessed with an interest coverage ratio of 140%.

Concluding, Heron said: ‘The changes that we’re announcing are designed to tailor affordability to each landlord’s individual circumstances, whilst keeping the application process straightforward for brokers and their customers.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2016/12/government-policy-towards-the-prs-will-increase-costs-for-landlords