The Bank of England is due to impose further restrictions on landlord borrowing. The new rules will come into effect in September and will apply to landlords with portfolios containing four or more properties with a mortgage.
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BoE Lending Restrictions
What this means for landlords is that if they want to apply for a new buy to let mortgage, the lender has to look at the entire property portfolio when making a lending decision.Lenders are also expected to require proof of rental income. Landlords may also get asked to produce a business plan, which is likely to put off many.
Landlord Stress Test
There is also the issue of the new landlord stress test to take into account. Lenders are required to apply a 5.5% stress test across all properties in a landlord’s portfolio, even though mortgage interest rates are currently less than 2%.
If all of your properties are generating enough income to cover the mortgage payments, you are fine, but if a couple of them are not making enough money, even though in total you are OK, you could have a problem.
One solution is to offload any unprofitable properties, but it is sensible to take financial advice first.
The rules are becoming increasingly complex and many experts fear that some smaller lenders will leave the market rather than deal with the extra burden. There are also fears that landlords will have no choice but to raise rents to cover the stress test.
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