The amount of transactions is predicted to fall dramatically, while loan values are also expected to tumble amid the introduction of the stamp duty surcharge, tougher lending rules and removal of tax perks for landlords, the ratings agency found.
In the future, landlord borrowers will be required to provide higher deposits, as regulatory rules cut the amount lenders can offer by tens of thousands of pounds, for even a modest buy-to-let property, Standard and Poors (S&P) forecast.
As a result, buy-to-let properties in London and the South East are set to become more economically unattractive to investors amid higher prices, the report said.
And it added that all landlord property sales across the country will be more expensive.
It comes as rules reduce lenders’ ability to compete on loan to value and affordability meaning providers may seek to differentiate by factors such as a borrower’s credit quality or the property type, the report said.
Drop in lending
S&P credit analyst, Alastair Bigley said: “We anticipate that the most immediate effect of the changes will be a drop in loan origination volumes.
“We expect the average loan balance in a BTL transaction originated between 2014 and 2016 to fall to £165,000 from approximately £203,000, and the average LTV will fall to 47.9% from 57.3% if it was assessed today.”
He added: “We estimate that of the BTL loans secured in properties in London and the South East underwritten in 2014-2016, 85.2% would not be originated at the same LTV now, and, on average, borrowers would be required to pay an additional £60,000 deposit to lower the LTV to meet BoE affordability requirements.”