Buy-to-let
Buy-to-let landlords could be locked out of the market in more than two-thirds of UK towns and cities if stricter lending criteria is implemented, new research shows.
According to property crowdfunding platform Property Partner, purchasing a property will be impossible for landlords in 59 out of 85 major UK towns and cities without at least a 40% deposit.
The places where would-be landlords face the highest financial barriers to entry include Worcester, Cambridge, Chichester and Bedford.
The Prudential Regulation Authority wants lenders to take account of likely future interest rate increases over a minimum period of five years when assessing whether borrowers can afford to pay through stress tests.
This would require lenders to set a minimum rate of 5.5% during the first five years of a buy-to-let mortgage contract.
Landlords have already been hit with a 3% rise in stamp duty this year on buy-to-let properties, while in 2017 mortgage interest tax relief is set to fall to 20%.
In response to the changing landscape some lenders have already increased the amount of rent that landlords need to charge relative to their mortgage costs.
Most lenders currently stress test their mortgages so that rental income covers 125% of mortgage payments, known as the interest coverage ratio.
While there are still lenders offering buy-to-let mortgages at this rate, many experts expect this to change in the future.
Nationwide and Barclays have both tightened up their lending criteria for buy-to-let landlords by upping their rental ratio cover from 125% to 145% and 135%, respectively.
Property Partner said that buy-to-let landlords could be forced to stump up more than 60% deposits in some locations if all lenders introduce stricter borrowing requirements from the PRA.
Other towns and cities in the top 20 that would require deposits over 50% include Reading, Gloucester, Warwick and Cheltenham.
Dan Gandesha, CEO of Property Partner, said: “Traditional buy-to-let landlords have had it tough of late with successive assaults on their potential income. The stricter lending rules expected to be introduced by the Bank of England follow April’s stamp duty surcharge of 3% for buyers of second homes and buy-to-lets.
“And from April 2017, the gradual withdrawal of mortgage interest tax relief will put further restraints on landlords’ profits
“This lending squeeze will only increase the financial barriers to entry to the market, restricting access to only cash buyers or those with hefty deposits, and potentially forcing some existing landlords to sell up.
“Highly-leveraged landlords seeking to remortgage could face a nasty shock, if their bank tells them they no longer qualify for the same loan to value mortgage.
| The top 20 UK towns and cities where would-be landlords face the highest financial barriers to entry | ||||||
| City/Town | Region | Average house prices (£) | 5.5% BTL mortgage interest rate pcm x 145 ICR | Average rent (£) | Deposit needed to cover 145% ICR | Minimum value of deposit required £ |
| Worcester | West Mids | £188,694 | £489 | £492 | 61% | £115,103 |
| Cambridge | East | £450,301 | £1,197 | £1,200 | 60% | £270,181 |
| Chichester | South East | £346,511 | £944 | £950 | 59% | £204,441 |
| Bedford | East | £256,074 | £715 | £725 | 58% | £148,523 |
| Lichfield | West Mids | £214,279 | £598 | £598 | 58% | £124,282 |
| Stevenage | South East | £259,954 | £760 | £775 | 56% | £145,574 |
| Chelmsford | East | £300,534 | £899 | £901 | 55% | £165,294 |
| Reading | South East | £295,729 | £904 | £923 | 54% | £159,694 |
| Gloucester | South West | £178,363 | £545 | £550 | 54% | £96,316 |
| Warwick | West Mids | £284,182 | £888 | £895 | 53% | £150,616 |
| Maidstone | South East | £267,132 | £834 | £850 | 53% | £141,580 |
| Poole | South | £278,615 | £889 | £901 | 52% | £144,880 |
| Woking | South East | £403,863 | £1,288 | £1,313 | 52% | £210,009 |
| Rugby | West Mids | £204,618 | £666 | £675 | 51% | £104,355 |
| Cheltenham | South West | £242,062 | £788 | £793 | 51% | £123,452 |
| Colchester | East | £227,804 | £742 | £750 | 51% | £116,180 |
| York | North Yorks | £234,795 | £765 | £776 | 51% | £119,745 |
| Exeter | South West | £231,661 | £770 | £776 | 50% | £115,831 |
| Warrington | North West | £165,412 | £550 | £550 | 50% | £82,706 |
| Winchester | South | £386,372 | £1,284 | £1,300 | 50% | £193,186 |
