Landlords being pushed towards 40% deposits

by: Edward Murray
  • 04/07/2016
  • 0
Landlords being pushed towards 40% deposits
A move to interest rate coverage (IRC) ratios of 145% across the entire buy-to-let market could require landlords to have a deposit of at least 40% in over two-thirds of the UK’s major towns and cities.

Research from property crowdfunding platform, Property Partner, found that in places such as Worcester, a move to IRCs of 145% would require landlords to put down a deposit of 61% with Cambridge and Chichester also being at the top-end of the possible squeeze on affordability, with likely deposits of 60% and 59%, respectively.

Referencing the Bank of England’s recent consultation on new affordability checks for buy-to-let mortgages, Dan Gandesha, CEO of Property Partner, said some landlords might be forced to sell up or look for new means of funding their property investments.

He added: “This lending squeeze will only increase the financial barriers to entry to the market, restricting access to only cash buyers or those with hefty deposits, and potentially forcing some existing landlords to sell up.

“Highly-leveraged landlords seeking to remortgage could face a nasty shock, if their bank tells them they no longer qualify for the same loan-to-value mortgage.”

A number of high-profile lenders, including The Mortgage Works, have already announced changes to their IRCs while newer players in the market such as Foundation Home Loans have also followed suit.

Simon Bayley, commercial director at Foundation Home Loans, said he supported the regulator’s calls on affordability and stress testing and expected more landlords to explore the option of operating through a limited company, a sector that is already seeing significant interest.

He said: “The limited company option is really gaining ground for a greater percentage of landlords.”

The Bank of England is due to publish its Financial Stability Report on 5 July.

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