18-January-2017
The number of buy-to-let mortgages on offer is falling as mortgage lenders react to new regulation and additional taxes on Private Landlords.
The number of loans on offer has fallen from 1482 to 1408 in the past four weeks a drop which is unusual for the December period as this is usually a time of stability in the mortgage market.
As of 1 January 2017 lenders must check that landlords can afford the debt by applying a stress-test with the loan rate set at a hypothetical 5.5 per cent. This percentage is high, given that most buy-to-let mortgage products are well below 5.5 per cent. This has meant many would-be landlords are restricted in how much they can borrow because of a hypothetical rate.
On top of this many lenders have raised the amount of rent a buyer must take in each month relative to their mortgage costs.
Previously the standard was 125 per cent but many lenders have now raised this to 135 or even145 percent, meaning that landlords must either borrow less or charge more rent to qualify.
In April this year higher-rate (40%) tax payers will no longer be able to deduct their mortgage costs when calculating their tax bill.
Instead they will receive a basic-rate (20 %) tax credit. Halving the amount a landlord can claim back via their tax bill means many landlords are likely to lose money forcing them to sell their properties.
To make matters worse, from September 2017 lenders will have to look at a landlord’s whole property portfolio (if they own four properties or more) before deciding whether to lend on a new property or not.
Landlords who hold their properties in a limited company, may have more mortgage options as, so far, they have been unaffected by the tax change. This is a more complex type of lending however and there is still only a few major lenders who are currently competing in this market.
Since April last year buy-to-let investors must pay a higher rate of stamp duty – three extra percentage points – when buying an extra property. This has led to a downturn in the number of buy-to-let investors but there are still opportunities to make money in the buy-to-let market, especially if you are prepared to buy in the north.
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