Proposals put forward by Bank of England will have an affect on landlords
Landlords have found themselves on the end of a ‘scale of restriction’ over the past couple of months.
There was the additional 3% surcharge on Stamp Duty, the cuts on landlords’ tax relief, and now the Bank of England has proposed that they should face new limits on the amount that they can borrow.
What are they proposing?
In an attempt to restrict the amount of ‘inappropriate’ lending, the Bank wants to cut the potential for credit losses.
Working with the Prudential Regulation Authority (PRA), the Bank wants lenders to be stricter when granting buy-to-let mortgages by taking numerous extra costs into account, including maintenance costs, tax liability associated both with the property and the landlord and the landlord’s additional income.
At the moment, for buy-to-let mortgages of up to 65% of the property value, lenders will ask landlords to prove that they have they will have the rental income to cover 125% of the mortgage if interest rates were at 5%.
Under the new proposals, this will increase to 5.5%.
How is restricting buy-to-let lending going to help?
Mostly due to the upcoming tax changes, there was a 35% surge in buy-to-let buyer activity last month, despite the UK housing supply falling by 8%, and there was an equivalent of 15 buyers for every property, leading to a further increase in house prices.
With the Bank under the impression that landlords with large mortgages are a risk to the economy, the changes are being proposed under the guise of being the government’s attempt to curb the threat of a ‘bubble’ occurring, specifically in that sector.
Is the government targeting landlords?
Chancellor George Osborne’s decisions to make cuts to landlords’ mortgage interest tax relief and to introduce the higher charge for Stamp Duty have not even come into play yet, which leaves us to wonder whether Bank of England Governor, Mark Carney, should have waited before presenting yet another restriction to the buy-to-let sector.
Whilst the proposals are far from final, if they do get brought in, the PRA have said that they will reduce its predicted buy-to-let growth forecast from 20% of the market over the next few years, to 17%.
As always, the market is ever-changing, so it is imperative that, when discussing your mortgage, of any type, that you speak to a specialist mortgage adviser.