Will new regulations slow buy-to-let market?

Over the past year, residential landlords have been subjected to a whole host of new regulations. Alterations to mortgage interest tax relief, an increase in stamp duty surcharges on buy-to-let purchases and changes to the wear and tear allowance are just some of the initiatives aimed at cooling the market.

Should the Bank of England press ahead with its plans for tighter mortgage lending criteria, this will be a further blow to buy-to-let landlords.

Intentions

The Bank of England believes the stricter lending criteria will cut the amount of buy-to-let borrowing by between 10%-20% in the next three years. Until presently, landlords have needed between around a 25% deposit to secure a buy-to-let mortgage.

Changes proposed by the Prudential Regulation Authority-the Bank of England’s regulatory sector-has called for lenders to make more stringent checks on landlords. This is to ensure that they can afford the mortgage repayments on their property. In addition, it has called for banks to test if landlords would still be able to afford monthly payments should interest rates rise.

Slowing Tactics

Jane Morris, Managing Director of PropertyLetByUs, observed, ‘this new lending criteria is a move at slowing down the booming buy-to-let market, which has seen a rush of landlords purchasing property to beat the stamp duty rise, which comes into effect this month. We have seen a sharp increase in the number of landlords placing properties with us over the last six months and since January, landlords sign ups have increased by 50-60%.’[1]

‘However, the market is very likely to slow down over the next few months, with Britain’s 1.8million landlords now facing the brunt of the increased taxes and new mortgage restrictions. The buy-to-let market provides the UK with essential housing for over 2.5million tenants and has been unjustly targeted by the government,’ Morris continued.[1]

Concluding, Morris noted, ‘landlords will need to find ways to protect their profits and income.’ She feels it is inevitable, ‘we will see rent rises and many landlords will be reviewing their fixed costs.’[1]

Finally, she said, ‘it is certainly a good time to review lettings costs, as some landlords could make significant savings on their letting agent finder and fully managed fees.’[1]

[1] http://www.propertyreporter.co.uk/finance/is-btl-lending-getting-tougher.html