Buy to let investors in the UK are preparing themselves for another round of new regulations as the Bank of England prepares to impose more new restrictions to private landlords.
In September, the Prudential Regulation Authority will start to enforce more stringent standards for landlords with four or more mortgaged properties.
Under the new rules, lenders may be forced to consider a landlords portfolio as a whole when they are assessing what mortgage product the can offer on a single property and they may need to see proof of rental income and a business plan before approving any new application for finance.
Landlords could find themselves unable to borrow, or the amount of finance available restricted, if their portfolio were to fail a stress test.
The announcement of the new rules has led brokers to arrange any new deals before the rules take effect and have warned that further restrictions on the buy to let sector, after the introduction of Section 24, increases to Stamp Duty and the ban on letting agents’ fees, could force many investors to leave the sector, potentially leading to shortages of rental accommodation.
Ray Boulger of John Charcol mortgage brokers, said that firms like his own were uncertain how lenders would react to the new rules.
He said; “The rules say the whole portfolio must be viable. Let’s say you have 10 properties and eight are generating rental income in excess of mortgage payments and the other two are not, but the shortfall is covered by the other eight,” he said.
“Is that going to be acceptable? For some lenders it will, for others it might not be.”
Bob Young, chief executive of Fleet Mortgages, said; “We don’t know which of the large lenders will continue into portfolio lending and, if they do, will they come in on a restricted basis?
“I suspect there won’t be enough supply for the current demand, let alone increasing demand. So that will cause issues around availability of product.”
This recent wave of new regulations affecting the buy to let sector are part of a drive by policy makers to help first time buyers, but there are concerns the policies might be counterproductive.
This week, David Miles, a former Bank of England policy maker, described the recent changes to the private rented sector as ‘wrongheaded’.
He said; “I think these measures were introduced in order to try to help make housing more affordable for people who want to buy them, I think they are almost certainly wrongheaded.
“I suspect that they will have a negative impact on the ability of young people to become homeowners, because those people are in the rented sector already.
“Making rental property more expensive, as is very likely if you reduce the attractiveness to suppliers of rented property, if a side effect of that is to make rents even higher, it is very hard to see that as helping the people who you are trying to help become homeowners.”
If you’re a landlord struggling with the impact of recent buy to let reforms, such as Section 24 and increases to Stamp Duty, our expert team can offer advice. Contact Landlord Debt Advisory on 0161 222 4311 or online at landlorddebtadvisory.com.