Building a large portfolio of buy to let properties in the UK just got harder as borrowing costs for landlords with four or more buy-to-let properties will rise.
At the moment, banks assess buy-to-let loans on whether a given property will bring in enough rent to service the mortgage payment.
But under new regulations which come into effect next year, lenders will have to check the safety of other loans in a landlord’s portfolio, creating delays in processing mortgages and extra costs which will reduce the number of lenders offering buy to let mortgages.
In many cases, landlords with portfolios of more than four properties will pay higher interest rates because fewer lenders, means less competition and therefore higher transaction costs.
Changing the rules comes at a time when mortgage arrears on buy to let properties are increasing as rental yields continue to fall - putting the squeeze on landlords who own more than one property and are highly leveraged.
The Bank of England has been tightening rules on buy-to-let lending because of the systemic risk to the economy if prices fall and has now, on many occasions over the last twelve months warned of the risk to the economy from the buy to let sector.
Some forecasters like Savilles believe that the new rules could cause number of buy-to-let transactions to fall by significantly over the next two years. Whilst other commentators predict that falling yields, tighter regulations and tax rules together with higher interest rates in the wake of Trump’s successful election to president could cause many landlords down the road, to throw in the towel if rentals do not rise enough to compensate.
With such a large number of people turning to buy to let to supplement their investment objectives, regulators are keen to ward of crisis in the housing market as economic conditions change in the light of Brexit.