Lenders are introducing new checks for the buy-to-let market, as they fear that landlords won’t be able to cope when interest rates eventually rise.
The new checks will be much tougher, to ensure that landlords can afford to meet the repayments after the Bank of England decides to raise the base rate. In an attempt to slow down the booming buy-to-let market, the government has introduced cuts to the mortgage interest tax breaks, which are due to come into force from April 2017. The Bank of England has shown some concern, as the new tax changes combined with increased interest rates could affect landlords’ ability to meet their mortgage repayments.
Some lenders, including NatWest and Barclays, have already introduced tougher affordability checks for buy-to-let products, which other lenders are also likely to adopt. Landlords also face an extra 3% stamp duty from April next year, all adding to their financial woes. The Coventry Building Society is the latest lender to introduce tougher affordability checks for landlords.
The changes include a landlord being able to demonstrate that they can afford the mortgage repayments if the interest rates increased to 5.5%. The rental income also has to be equivalent to 125% of mortgage interest repayments, although other lenders are insisting on a higher percentage, including Barclays which expects rental income to cover 135% of the repayments.
All borrowers, including buy-to-let can ask a mortgage adviser for advice before they apply for a mortgage. The adviser has knowledge and experience of which lenders are likely to be less strict, partly due to being CeMAP qualified.