Speaking to an audience of mortgage intermediaries at The Mortgage and Protection Event in Newcastle, Richard Donnell research and insight director, Hometrack, said growth in rental income was key to driving the buy-to-let remortgage market.
Rental growth, however, has not kept pace with the rate of regulatory change, creating a subset of mortgage prisoner landlords unable to switch lenders.
Many lenders tightened stress tests and income coverage requirements before the Prudential Regulation Authority (PRA) confirmed them in October this year, which included tightening interest rate stress tests to a minimum of 2% above Base Rate or 5.50% x mortgage rate.
Analysis carried out by Hometrack found that loans originated in 2013 at 65% loan-to-value would pass today’s tougher rent coverage calculations of well above 125%. More than 80% of people who originated a mortgage in 2013 at 65% would be able to move banks under the PRA’s tougher calculations, based on the rent received in 2013. Borrowers on 75% LTVs and over would find the ability to remortgage today, more of a challenge. Just 50% would be in a position to do so.
However, Donnell said if rents went up 10%, half the problem would disappear.
Donnell said rapid rental growth had been seen in London and the south east but this trend had not yet been experienced in the other parts of the country.
Yorkshire and Humberside, Wales, the North East, and North West rents have remained broadly where they were in 2007. But he said this was about to change. “There is a real upside for rents, they are really starting to pick up.”
“It’s a good news story for landlords because we predict the market will start to see a pick up in the level of rental income they can earn,” said Donnell.
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