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Bank of England hits landlords with tougher loan test

A hike in stamp duty and harder lending criteria are part of efforts to cool the buy-to-let property boom before it collapses.

 
Bank of England hits landlords with tougher loan test

Landlords have been hit by increased taxes and the removal of tax breaks but their difficulties aren't over as the Bank of England plans to step in and slow the buy-to-let market further.

The Bank of England's Prudential Regulation Authority (PRA) has said it wants buy-to-let property buyers to face stricter limits on how much they can borrow as part of a consultation on changes to landlord lending.

Typically when applying for a buy-to-let mortgage, lenders look for a rental cover of 125% at an interest rate of 5%. In other words, the rent has to be 125% of the mortgage. They do not take into account the personal financial circumstances of the borrower.

This would change under the PRA’s proposals which would force lenders to look at all the costs a landlord would incur when renting out a property, including any tax liability, and to verify the landlord’s personal income.

The PRA has also recommended lenders stress test landlord borrowing against tougher interest rate rises to ensure they could afford to repay the mortgage if interest rates rose 2% over a five-year period from the start of the mortgage.

The consultation has been published following fears that a buy-to-let boom is causing the property market to overheat and the PRA said the new rules would ‘curtail inappropriate lending and the potential for excessive credit losses’.

Mark Carney, governor of the Bank of England, expressed concern last year that the buy-to-let market in the UK could create economic instability and that landlords would be vulnerable to large falls in house prices.  

The government has already taken steps to try and curb the boom in buy-to-let with announcements in the 2015 Budget and in this year’s Budget.

From this April, those buying second properties will face an extra 3% stamp duty and from April 2017, mortgage interest relief will be reduced. Under the four-year withdrawal of the relief, which allows landlords to offset their mortgage interest, in 2017/18 landlords will be able to apply the existing relief rules to 75% of their finance costs and the remaining 25% using the basic rate reduction.

The following three years will see the proportion change to 50:50, then 25:75 before the basic rate applies in full from 2020/21.

This year, landlords were hit further as profit made from the sale of second properties was excluded from a capital gains tax (CGT) cut. CGT has been reduced from 18% to 10% for basic rate taxpayers and from 28% to 20% for higher rate taxpayers, however chancellor George Osborne said in this Budget speech that ‘the old rates will be kept in place for gains on residential property’.

LendInvest, a peer-to-peer lender for property investment, has said the stamp duty increase will hit rental yields and draw more landlords into paying the tax.

Landlords with property in London and the South East will need the longest to recoup the cost of stamp duty hikes, on average 20 months, LendInvest found.

In 13% of the country, landlords will pay stamp duty for the first time, as the zero rate for properties up to £125,000 will no longer apply and a 3% charge will apply – costing the buyer up to £3,750.

Landlords in Darlington, Halifax and Doncaster will be among the worst affected as they will pay stamp duty for the first time and because they have the lowest average rents, it will take longer to recoup.

Ian Thomas, chief investment officer at LendInvest, said the measures to curb the buy-to-let market could affect tenants, property vendors and other borrowers more than landlords.

‘Landlords are still going to do this business…but they will negotiate a better deal with the vendor and if their cost base goes up they will pass that on to the tenant,’ he said.

While he said ‘occasional landlords’, like those who move from a flat to a house and choose to keep the flat, may be put off keeping a buy-to-let because it was too expensive, professional landlords would not be deterred.

Thomas also said cutting out landlords in a bid to ‘redistribute property’ could mean fewer properties are built.

He argued that property developers rely on landlords purchasing flats off-plan in order to receive funding for the development and if there are ‘fewer investment buyers it will be harder to fund the new development’.

‘If [the government] is trying to redistribute property [between landlords and non-landlords, the measures] will have the effect of throttling the supply,’ said Thomas.

‘They are trying to redistribute property ownership but at a fundamental level we need to build more…I am concerned that [the government’s plans] could throttle supply, and that will lead to rents going up for everyone else.’

5 comments so far. Why not have your say?

Paul Barrett

Apr 01, 2016 at 07:18

A ridiculous set of proposals

If lenders are to assess the costs that a LL might incur that may militate against the ability to service the mortgage would mean most leveraged LL would be out of business

ANY LL who does NOT have RGI on his tenants would be vulnerable to the useless eviction system

It can take over 9 months to evict a tenant

Then you have refurb costs inevitably

Also replacement of stolen items which usually occurs with evicted tenants

Then the costs in dumping all the rubbish they leave behind

You must have all seen the TV programme Nightmare Tenants etc

Well there are far more of those than Nightmare LL

Now if the LL DOESN'T have RGI he has to find these costs potentially for EVERY tenancy

No mortgaged LL has such resources!!

Once evicted you have to source new tenants

It could easily be a year before you have rent paying tenants again

Very few LL could sustain mortgge payments in such circumstances without RGI

So will every LL be required to have RGI

If so there will be millions of homeless tenants

RGI is something that only the best and well paid tenants can qualify for

Its like requiring residential homeowners to be able to prove they could pay the mortgage if they were made redundant or off long term sick!!

If the Govt wants to slow the ability of LL to buy property they just have to require a higher pay rate of say 150%

That would make most BTL property unviable so not many would be bought

Govt needs to cancel all the stupid Budget Taxes and control BTL by requiring higher pay rates and lower LTV percentages

Reduce it to 50% LTV and you'll stop BTL overnight

Never has any Govt as to be so stupid as to wish to tax debt interest as income

The PRS is the only BUSINESS to be treated in this way PRESENTLY

Though I am given to understand that businesses making over £2 million gross will have their ability to reduce their tax by offsetting their DEBT interest finance costs against income substantially reduced

Which idiot came up with the idea of regarding mortgage DEBT interest!!??

Oh! yeah it was some dopey Geography graduate without any knowledge of the real world!!!

BTL only works for poor LL if they only have to concern themselves with meeting the pay rates; which currently are about 125%; which is what the whole BTL market has been based on since 1996

Increase the pay rates a lot if you want as that will halt the market for small poorer LL requiring mortgages

It won't stop the richer LL which allegedly is what that idiot Osborne brought in C 24 to prevent

Requiring smaller leveraged LL to estimate what other costs there maybe apart from mortgage payments is bonkers

Gas boiler

Guttering

Eviction

Fire

Flood(Flood RE) DOESN'T cover residential LL properties; how many LL are aware of that!!!!??

Voids

Council Tax following fires, etc , Councils now make LL pay even if a calamity to the property occurs!!!!

There are so many costs that a LL may have to face that few LL on the average £25000 wage could ever afford to service in the event a tenant stops paying rent etc

This is for jus ONE BTL property!!!!!!!!

That is before we even consider IR increases!!

Govt is just plain bonkers if it thinks LL could support all the financial loses that a BTL property could cause

I fear for tenants

There will be massive rent increases and far fewer rental properties to choose from

From the stories I've heard LL are selling to homeowners

So one more rental property OFF the market and homeless tenants!!

There will be another 300000 EU nationals etc arriving this year

Hardly any will be looking to become FTB; so where they gonna live!!!???

As has been stated elsewhere the Tories have lost the plot over the PRS

Thatcher would be turning in her grave if she knew what this idiot Osborne is doing to the PRS

Something that she transformed by introducing Assured Shorthold Tenancies, along with a few other ideas in the Housing Act

BTL LL are NOT preventing FTB from buying and certainly NOT the poorer LL who has to use mortgage finance to buy

The RICH LL are those that will not be affected by C24 and any sole trader LL who is able to incorporate will also escape C24 provisions

Apparently ONLY 45% of the PRS is leveraged; the rest is occupied by RICH LL!!!!!!!!!

These aren't subject to C24 at all.

Osborne stated that C24 was to prevent RICH LL buying BTL property

The RICH ones aren't affected!!!!

Expecting LL to meet all the costs of running just ONE BTL property out of rental income or not!! and their private earned income is just impossible for most leveraged LL

Even the small corporate ones

Does NOBODY understand the difficulties and costs in being a LL!!!??

It seems not!!

Ask the the LL who were involved in OVER 150000 evictions last year for rent arrears and the 35000 who had their BTL properties repossessed mostly due to tenants NOT paying rent and then it taking months to evict them!!!

The BoE and Osborne are totally clueless as to how the PRS operates

To make the biggest fundamental change in tax on BUSINESS for over 200 years caused by a dopey Geography graduate just beggars belief!!

Since when can BUSINESS be charged tax on its debt interest as though it is INCOME

If you are a mortgaged BTL LL; that's when!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

report this

Paul Barrett

Apr 01, 2016 at 07:18

A ridiculous set of proposals

If lenders are to assess the costs that a LL might incur that may militate against the ability to service the mortgage would mean most leveraged LL would be out of business

ANY LL who does NOT have RGI on his tenants would be vulnerable to the useless eviction system

It can take over 9 months to evict a tenant

Then you have refurb costs inevitably

Also replacement of stolen items which usually occurs with evicted tenants

Then the costs in dumping all the rubbish they leave behind

You must have all seen the TV programme Nightmare Tenants etc

Well there are far more of those than Nightmare LL

Now if the LL DOESN'T have RGI he has to find these costs potentially for EVERY tenancy

No mortgaged LL has such resources!!

Once evicted you have to source new tenants

It could easily be a year before you have rent paying tenants again

Very few LL could sustain mortgge payments in such circumstances without RGI

So will every LL be required to have RGI

If so there will be millions of homeless tenants

RGI is something that only the best and well paid tenants can qualify for

Its like requiring residential homeowners to be able to prove they could pay the mortgage if they were made redundant or off long term sick!!

If the Govt wants to slow the ability of LL to buy property they just have to require a higher pay rate of say 150%

That would make most BTL property unviable so not many would be bought

Govt needs to cancel all the stupid Budget Taxes and control BTL by requiring higher pay rates and lower LTV percentages

Reduce it to 50% LTV and you'll stop BTL overnight

Never has any Govt as to be so stupid as to wish to tax debt interest as income

The PRS is the only BUSINESS to be treated in this way PRESENTLY

Though I am given to understand that businesses making over £2 million gross will have their ability to reduce their tax by offsetting their DEBT interest finance costs against income substantially reduced

Which idiot came up with the idea of regarding mortgage DEBT interest!!??

Oh! yeah it was some dopey Geography graduate without any knowledge of the real world!!!

BTL only works for poor LL if they only have to concern themselves with meeting the pay rates; which currently are about 125%; which is what the whole BTL market has been based on since 1996

Increase the pay rates a lot if you want as that will halt the market for small poorer LL requiring mortgages

It won't stop the richer LL which allegedly is what that idiot Osborne brought in C 24 to prevent

Requiring smaller leveraged LL to estimate what other costs there maybe apart from mortgage payments is bonkers

Gas boiler

Guttering

Eviction

Fire

Flood(Flood RE) DOESN'T cover residential LL properties; how many LL are aware of that!!!!??

Voids

Council Tax following fires, etc , Councils now make LL pay even if a calamity to the property occurs!!!!

There are so many costs that a LL may have to face that few LL on the average £25000 wage could ever afford to service in the event a tenant stops paying rent etc

This is for jus ONE BTL property!!!!!!!!

That is before we even consider IR increases!!

Govt is just plain bonkers if it thinks LL could support all the financial loses that a BTL property could cause

I fear for tenants

There will be massive rent increases and far fewer rental properties to choose from

From the stories I've heard LL are selling to homeowners

So one more rental property OFF the market and homeless tenants!!

There will be another 300000 EU nationals etc arriving this year

Hardly any will be looking to become FTB; so where they gonna live!!!???

As has been stated elsewhere the Tories have lost the plot over the PRS

Thatcher would be turning in her grave if she knew what this idiot Osborne is doing to the PRS

Something that she transformed by introducing Assured Shorthold Tenancies, along with a few other ideas in the Housing Act

BTL LL are NOT preventing FTB from buying and certainly NOT the poorer LL who has to use mortgage finance to buy

The RICH LL are those that will not be affected by C24 and any sole trader LL who is able to incorporate will also escape C24 provisions

Apparently ONLY 45% of the PRS is leveraged; the rest is occupied by RICH LL!!!!!!!!!

These aren't subject to C24 at all.

Osborne stated that C24 was to prevent RICH LL buying BTL property

The RICH ones aren't affected!!!!

Expecting LL to meet all the costs of running just ONE BTL property out of rental income or not!! and their private earned income is just impossible for most leveraged LL

Even the small corporate ones

Does NOBODY understand the difficulties and costs in being a LL!!!??

It seems not!!

Ask the the LL who were involved in OVER 150000 evictions last year for rent arrears and the 35000 who had their BTL properties repossessed mostly due to tenants NOT paying rent and then it taking months to evict them!!!

The BoE and Osborne are totally clueless as to how the PRS operates

To make the biggest fundamental change in tax on BUSINESS for over 200 years caused by a dopey Geography graduate just beggars belief!!

Since when can BUSINESS be charged tax on its debt interest as though it is INCOME

If you are a mortgaged BTL LL; that's when!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

report this

Mark Stringer

Apr 01, 2016 at 08:24

Sadly, property and its perceived unstoppable rise in value has in part replaced manufacturing in this country and added to our economic woes. Let's forget the role of the morons who we elect every 5 years for a minute.

It is some of the reason why our kids can't get on the property market and sadly buy to let landlords seemed to believe they had some sort of taxpayer funded free pass to domino multiple purchases (domino because if one goes then the mortgages on the others are likely to follow suit) and they became part of this rent/property rise fiasco that "we" heeped upon ourselves.

This forum is too limited to try to set out the whole merry go round of social housing, private landlord, bank of rich mum and dad subsidising deposits etc. etc. but surely this situation cannot continue forever and we all must know that with a dwindling taxpayer base, rising deficit and economy in trouble that taxes from all quarters will be needed in greater amounts in the coming years. Osbourne and his merry band of liars are only putting off further restrictions because they have the local and EU vote coming up as they did with higher rate pensions relief.

Buy to let like any investment is a risk and the risk for everyone unless you are a pal or donor of the political parties chasing a knighthood is that they will alter things.

I personally think "we ain't seen nothing yet".

report this

Paul Barrett

Apr 01, 2016 at 08:59

Yep I'm starting to think that Labour isn't looking that bad!!

That is a terrifying thought; but quite frankly the Tories are the more left wing from the Labour left

Not even Corbyn in his wildest dreams would have thought it fair to tax LL on their finance costs

Just shows you what a looney Osborne is

Apparently the bedroom tax is to be soon over turned or rather many of the tax claims are to be overturned cos the bedroom WASN'T a bedroom as determined by a recent court decision!!!

This would be an administrative nightmare

What about all those forced to move out and now find they shouldn't have been

Will they be allowed to reoccupy their previous property booting out the latest tenant!!!???

Remember the tax take is only affecting SOLE TRADER LL

That is about 25% of mortgaged LL

Gradually these STLL will wither on the vine and then dopey Osborne won't be able to obtain C24 tax!!

There will be NO mortgaged STLL!!!

What's he going to do then and who will he blame for FTB not buying

All the small corporate LL

Is he going to charge income tax on corporate LL mortgages as he hasn't any STLL to tax anymore

As you stated C24 is a ludicrous tax

If the C24 JR is won Osborne will surely be sacked

This is the most crass tax ever devised

It is clear Osborne just doesn't understand how the PRS works

Mortgaged LL have NOT prevented FTB from buying

RICH LL might have done as they don't need mortgages

How can a poorer LL who needs a mortgage to buy be accused of being RICH and the cause of ALL of the woes of the housing market

Stark staring bonkers!!!

report this

Mark Stringer

Apr 01, 2016 at 09:19

We aren't privy to 90% of the waste and mismanagement that goes on in this country.

Perhaps for now those that hold btl in limited companies are ok, but do you really think that any current or future government is going to leave alone a rich seam of easily taxable source.

The safer ones might be the multiple btl owners with say 10 properties plus.

Too many people have indulged in the property merry go round and helped heat up the market in a free for all.

part of the problem is that when you allow free reign of anything if gets abused and distorts markets just like banking.

As I posted before I don't think we have seen anything yet as to what is to come regardless of who is in power. I wouldn't mind if there was some honesty though in what they are doing or plan to do, but the game of see no evil, hear no evil..... is played by all and sundry so the pretence can continue.

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