Watch out Landlords! Looking at a 4th Property? Good luck with the Mortgage

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Published: 29/09/2017   Last Updated: 29/09/2017   Tags:

'New regulations due to come into force soon will force rental properties back onto the market for sale'.

Not the phrase you wanted to hear?

New buy to let mortgage rules could force rents higher and lead to a fall in the number of homes available to let.

The Prudential Regulatory Authority (PRA) is forcing lenders to change their approach to lending funds to portfolio landlord with four or more mortgaged properties.

Lenders will now need to see a landlord’s entire portfolio prior to granting any more leverage or new finance.

The new rules are due to come into effect from the end of September and some lenders have already adopted the principles early and cross market into commercial as well (although not mandatory)

What’s going to happen now?

These rules are being introduced to avoid over lending to landlords and leveraging too high. We’ve already seen huge changes over the last few years. The introduction of the additional 3% on the stamp duty land tax, the stress testing at 5.5% and income being 125% of interest mortgage payments, with lenders adopting the higher 145% level.

Who does this affect?

Sorry Tenants! Bad News Landlords!

Rents are going to have to go up! It’s the same time and time again, we are getting tired of the saying “Rents must go up”!
Why should rent go up? Why not adopt a property with minimal furnishing? No white goods? That’s overcome the wear and tear and tenant’s deposit or deductions?

In all seriousness, the higher cost of administration and throttling of ability to ensure a profitable business will definitely mean that homes to let will start to disappear from the market, thus pushing more rental properties into a sales domain. The issue here is that capital repayment mortgages and lenders look at personal income and maximum lending is around 4 times annual salary. So to by a property at £600,000 one would need to earn over £100,000. Which, as you will most likely agree, is rather higher than the average salary in the UK and in London.

Where will this go now?

The honest answer is we just don’t know, Property is now starting to go the route of Financial institutions. More regulations, more compliance, more tax, less relief. It may seem like landlord’s are fighting a losing battle. Most would assume that to get the maximum amount of rent, one would have to provide the best quality property. However, spare a though for this, and bear with the analogy.

Lower rent, not hugely lower, but not an attempt to maximise rent and yield; unfurnished property, so no beds, wardrobes etc; White Goods? Don’t supply them, leave the space for them but don’t supply.

Could this work?

Possibly for a certain type of tenant. The investment that a tenant would make in the purchase of the home appliances and furniture may mean that a longevity of occupation would be beneficial to a landlord.

Of course the usual regulatory and compliance matters would still need to be covered by the landlord, Gas Safety, buildings insurance etc. However, minimising the items in a property and the 'things that could go wrong' could possibly maximise return for a landlord and minimise any deductions to a tenant’s security deposit (as there’s no furniture to damage)

What are your thoughts on this? Where do you think this will go?

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