Buy-to-let investors may soon have to find a 60% deposit as a result of tax changes which will come into force next year.
According to experts, a number of lenders may introduce 40% mortgages for landlords, as the mortgage industry faces tighter regulations. Stress tests have also been recommended by the Bank of England, to ensure that landlords can cover 145% of their mortgage by rental income and afford an interest rate of 5.5%.
From April 2017, landlords will face higher costs, as tax changes mean that they will no longer be able to offset mortgage expenditure against rental income. The 145% rental cover has already been introduced by three banks; Nationwide, Barclays and TSB.
Property Partner, a crowdfunding website, found that in order to meet the requirements, landlords would need 60% equity. In areas where rental income is lower, landlords will require a larger deposit.
Simon Collins, from John Charcol mortgage brokers, stated that lenders are likely to target those landlords with large deposits. Experts also believe that the long term fixed rate products which have recently been introduced for residential mortgages with a low Loan to Value ratio, may also be introduced for buy-to-let. Landlords have been advised not to panic about the tighter regulation, as some of the measures are already in place.
Mortgage advisers study on a CeMAP course so that they have all the relevant information at hand before advising borrowers about the various mortgage products on the market.