Both amateur and seasoned landlords dabbling in the buy-to-let market haven’t had it easy over the past couple of years. Since April of 2016, higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties have made it more expensive for landlords to expand their portfolios, while this year’s changes to income tax relief have made it increasingly difficult for property owners to make mortgage payments.
Now, as of October 1st, new lending regulations put in place by the Prudential Regulation Authority, part of the Bank of England, have made it more difficult for buy-to-let investors with more than four properties to borrow money and expand their portfolio. This not only affects property owners but also lenders on a nationwide scale.
With the new crackdown on lending to buy-to-let investors, borrowers can expect to see banks and other major players abandoning the market. Experts warn that the extra work involved may be beyond the infrastructure of most lending companies, which can lead to a fall in the number of options that buy-to-let investors can turn to for financing. Santander, one of Britain’s biggest lenders, plans to stop lending to landlords with large portfolios in light of the new Prudential Regulation Authority rules, and others are expected to follow suit.
With a decreasing number of willing lenders comes increased competition among the remaining companies. Landlords can expect to see rising interest rates and stricter requirements when requesting a loan for additional properties, particularly beyond the fourth purchase.
After October 1st, landlords will have their entire portfolio taken into consideration when applying for financing to purchase a new property. Previously, banks and other lenders only took into account the individual property concerned. This means that both landlords and lenders will have to put in more time, effort, and paperwork for each transaction, which will result in borrowers paying higher prices, or even failing to secure a loan.
Landlords also face the concern of being unable to remortgage properties. While not all borrowers would be affected, the new regulations may lock certain property owners to a hefty variable rate of interest. People who own land in areas where property values have done badly, such as Scotland and Northern Ireland, are most at risk of becoming what’s known as a “mortgage prisoner.”
While many established landlords will be adversely affected by the new regulations set in place by the Prudential Regulation Authority, not all property owners need worry. Rules only apply to landlords working individually. Those who run their business through a limited company will not be affected. Both new and established landlords should take these new regulations into consideration as they 1move forward with their business in order to maximise their profits.