Buy to Let landlords are bracing themselves for changes to lending requirements by the Bank of England. The changes, which the Bank’s Prudential Regulation Authority (PRA) announced yesterday, could prove the end of amateur landlords.
The new rules, which are set to be implemented from January 2017, outline minimum expectations that lenders must meet in underwriting Buy to Let mortgages. This includes requiring landlords to have higher levels of rent relative to their mortgage costs and stress testing new mortgages at a rate of 5.5pc. Mortgage experts say that the new rules will make it harder for landlords with a small portfolio of one or two properties to pass these affordability tests, which could see them forced to sell up.
The changes follow the 3 per cent stamp duty surcharge on purchasers of second homes and additional properties which George Osborne introduced in April, leading many to believe there is a political agenda against landlords.
Matthew Cobb, Director of New Homes says “There has been a political focus on people’s right to buy their own home and the challenges in relation to affordability, particularly for first time buyers. This does seem to have led to an economic agenda against landlords as the government are trying to take the heat out of the market, and landlords are an easy target.”
The impact of the new rules might not only be felt by landlords, as many are concerned of a negative impact on the market as a whole.
Benjamin Hobart, Associate Director of New Homes says, “The government is looking to safeguard first time buyers. However, it is most likely that first time buyers will also be negatively affected by these changes, as landlords are likely to increase rents to cover costs and make their investments worthwhile. This reduces the ability of this group of buyers to save for a deposit, which is already the biggest issue with affordability.”
In spite of the new rules not yet being in place, the expected changes already seem to be having an effect on buy to let sales. Matthew says he is seeing “very few investors buying at present” but feels this could also be a result of investors waiting for the Autumn Statement to be published on November 23rd. Head of research Nicola Almond says “There is a growing expectation of changes to stamp duty in the Autumn Statement, which is a possibility if the government feels that the post Brexit property market needs an injection of momentum”
The Bank’s new rules have already resulted in a change in marketing strategy by agents and developers. Marketing has become more geared to owner occupiers, with an emphasis on Help to Buy at certain price points, among other strategies.
“We need to start offering developers incentives such as stamp duty paid, rental guarantees or launch the product nearer to completion. However this won’t work for everyone as some developers will continue to need early off plan sales to fund the build” says Ian Crawt, Director of New Homes.
“On a positive note, with the off plan investor market weak, developers with large scale projects are now more open to bulk sales, mainly Build to Rent (BTR) operators, to assist with de-risking or funding requirements. This could seriously boost London’s provision of BTR, giving tenants another option.”