Over the next few months, it is anticipated that tens of thousands of private landlords in the UK will face struggles in their quest to remortgage their property. A wave of investors obtained mortgages in March 2016, looking to avoid the 3% surcharge for new buy-to-let and second home buys, of which came into effect the month after.
With the end of their current deals closing in, a large proportion of landlords will now need to refinance, before automatically being put on the standard, yet significantly higher, variable rate set by their lenders. Many of these landlords will find it tough to remortgage, and there are a number of reasons for this.
Stricter lending criteria for buy-to-let mortgages
When compared to two years ago when the attractive mortgage deals were agreed, there are now much tighter lender criteria that may prevent landlords from remortgaging. There will be many circumstances where landlords are unable to remortgage, with the potential that their options will be limited and only able to do a product transfer with their lender. This significant lack of options and the difficulty in finding the finances that they need may see the number of landlords reducing significantly in the early stages of 2018.
Factors affecting buy-to-let mortgages
Over the last couple of years, there have been a number of changes that will all have an impact upon the buy-to-let mortgage market in some way or another. As the government have introduced new laws and regulations to the way that market works, landlords are likely to be affected, especially when looking to remortgage their buy-to-let property.
Tax relief reductions – The government have introduced a new regulation regarding the tax relief that landlords are allowed for their property. The amount in which the landlord can claim back as part of the tax relief has been reduced, and is set to continue to reduce year on year, until it reaches the new standard rate.
Stamp duty charges – In 2016, investors looked to snap up their properties before the stamp duty deadline, meaning that they would save thousands of pounds when compared to buying their property after the stamp duty deadline. The deadline had a huge role to play in the big spike in housing transactions in March 2016, but for any property purchases going forward, the stamp duty charge will apply to landlords.
Stress-testing rules – This was introduced with the sole purpose of reducing risk. Landlords are now required to generate more rental income under these new rules, to ensure that their mortgage costs are covered, even in the event that interest rates increase. As part of this, the rental income and mortgage payments are assessed, ensuring that interest rate increases won’t be detrimental to the landlord.
Difficulties for portfolio landlords
As a result of the regulatory changes in 2017, nearly three quarters of UK landlords with at least four buy-to-let mortgages, otherwise known as portfolio landlords, suggest that gaining finance for a property has been difficult for them to do.
As of September 2017, when a portfolio landlord looks to obtain finance for their next property, the lender is required to run extensive checks, focused around the affordability of the finance they are looking to achieve. As a result of this, landlords now have to ensure that each property within their portfolio is performing well, as any property not doing so may well remove the ability to obtain the loan. The opportunities for further growth may well be significantly hampered where portfolio landlords are concerned now, but ensuring that they are running a tight ship may help their cause.
Mark Burns is the managing director of property investment firm, Hopwood House.