As I’m sure you are all aware, just days before the 3% hike in Stamp Duty for buy-to-let properties came into effect there was another blow to the sector when the Prudential Regulation Authority (PRA) announced plans to curtail lending in the buy-to-let sector by instructing lenders to implement more stringent income checks.
The PRA wants banks to check a borrower’s wider financial circumstances rather than just taking into account rental income on the property and wants lenders to make sure landlords could cover the repayments if interest rates were to rise by 2%.
My feelings on this are mixed. I do not think anyone wants to encourage risky lending in this sector and given the other measures currently being taken in the market, stress testing could well be necessary, particularly if ongoing calls for rent control are successful.
If interest rates rise, mortgage repayments follow suit and while it would seem only rational that such increases would have to be mirrored in rents, this wouldn’t be possible if measures to cap rents are introduced. This means the landlord would have to find a way to meet the increase in repayments from his or her own pocket. Many of the recommendations, particularly stress testing at 125% of 5.5% have already been implemented by the majority of lenders and we have continued to see good growth in the sector.
Foundation Home Loans has provided us with some much needed innovation in allowing a day-one remortgage until 31 May for those that may have bought properties for cash to beat the Stamp Duty deadline, as long as a deposit can be evidenced.
Criteria changes in March
A couple of criteria changes for the month of March to note. First, Leeds Building Society has announced that it will now consider gifted deposits where the gift is from a family member (defining family member as a spouse, parent, grandparent, sibling or child).
Secondly, Paragon revealed it will now accept applications for consumer buy to let through its sister company Mortgage Trust, as long as the intermediaries have the necessary permissions.
