BTL Lending Criteria to Tighten
Landlords looking for a buy-to-let mortgage will face more restrictive lending criteria in the future.
High street lenders are planning to put stricter checks in place to help head off a potential ‘buy-to-let boom’. The BTL lenders are keen to avoid government regulation of the BTL mortgage market; which remains largely free of Financial Conduct Authority (FCA) control, despite continued attempts by the European Union to apply regulation to the BTL mortgage market .
Evidence of tightening regulation
There has been evidence of stricter controls being placed on loans to landlords by lenders over the last few weeks.
1. Increasing the notional interest rate charged on a mortgage when calculating the rental cover for a loan. This has the impact of reducing the amount a lender would be prepared to advance at a given rental level. Examples of this are that the Yorkshire BS, Accord and Natwest who have all increased their notional rates by 25 basis points over the last few weeks. Take for example Natwest which has increased its rate from 5.25% to 5.5%. This has the effect of reducing its lending for a property with a rent of £750 per month from a maximum of just under £138,000 to just under £131,000 resulting in a requirement of a massive £7,000 in additional equity for a landlord to find to fund a purchase.
2. Some lenders are introducing mandatory questioning about their financial situation to ascertain whether they can support the loan. This includes being able to demonstrate previous experience in the buy-to-let sector as well as demonstrating that they were not wholly reliant on the rental income and could cope with voids periods where they were no longer receiving rents.
These tougher checks follow on from the Mortgage Market Review which was instigated by the previous government to try and iron out some of the perceived shortcomings in the mortgage market which ultimately led to the financial crash.
Should landlords panic?
Should landlords act before mortgages become more difficult to secure?
These small steps could be perceived in a number of ways. It could be lenders want to ‘appear’ to be acting responsibility, to fend off the risk of further Government regulation.
More likely cause, is their concerns over safeguarding the quality of their mortgage book, and pushing to minimise bad debts before this low interest rate environment reverses.
I can’t see any need for landlords to be worried about accessing additional funds in the immediate future; but it probably does serve as a timely reminder that the benign low interest rate and landlord friendly loan environment will not be around forever.