Changes to buy-to-let lending criteria being introduced at the end of this month could encourage a surge of rental stock as landlords look to offload their ‘weakest’ properties.
From 30th September 2017, the Bank of England’s Prudential Regulation Authority will tighten lending criteria further, following the introduction of more stringent ‘stress tests’ earlier this year.
Mark Lawrinson, regional director of London agency Portico, reiterates that landlords will now have their whole portfolio scrutinised when applying for buy-to-let funding.
“If you have six properties and four are generating enough rental income to cover mortgage payments and then some, but the other two are not, your new mortgage application may not be approved by some lenders,” he explains.
He says this could mark the start of a period of rental properties coming to market as landlords look to offload those generating the lowest returns.
“The new rules could also have a knock-on effect on rental prices, as landlords look to cover any shortfalls or carry out works to a property to both increase the capital value and the rent, in turn improving the yield and the return,” says Lawrinson.
Richard Blanco, a landlord and National Landlords Association representative, says it may already be too late for landlords who want to remortgage before the new criteria comes into effect.
“Many lenders will unfairly assess landlords’ existing mortgages through a 145% x 5.5% prism even though they originally got their mortgages on looser criteria years ago,” says Blanco.
“This could create mortgage prisoners: borrowers who are unable to switch lenders. This is a reminder that if you do remortgage to another lender, always choose one that has a good track record in switching customers to competitive follow-on rates once the initial product has expired.”
According to mortgage experts Capricorn Financial, the new rules could force some lenders to withdraw from the buy-to-let lending market altogether.
“Santander have already indicated they will not lend to portfolio landlords for purchases or additional borrowing, while others have improved their offering through brokers – NatWest, for example, have gone from a maximum of four properties to 10,” says the firm.
Lawrinson concludes: “Rental yields in London are extremely low, so tougher affordability checks mean that a lot of properties simply won’t cut it as viable buy-to-let investments.”
“We have certainly seen less professional landlords adding to their portfolio this year, but there is still money to be made in buy-to-let if you invest smartly.”