Choice of buy-to-let mortgages shrinks at fastest level since financial crisis
Over recent months, the buy-to-let mortgage market has faced a number of challenges. New regulatory requirements to confirm affordability have seen many lenders raise their buy-to-let 'stress rate' (the amount of rent needed to cover a mortgage). Changes to the way in which rental property is taxed has also hit the sector.
The combined result of these changes has been the sharpest fall in the number of buy-to-let mortgage deals since the global financial crisis.
Largest drop in choice of buy-to-let mortgage deals since 2009
New research has revealed that the number of buy-to-let mortgage deals available in the UK has fallen at its sharpest level since 2009.
Moneyfacts data has revealed that the choice of deals has contracted from 1,482 to 1,408. The Daily Telegraph says this is “the largest drop in numerical terms since March 2009, when lenders drew back from the sector and concentrated instead on mainstream homeowner business”.
Landlords with a small deposit have been hardest hit. The financial analyst reports that the choice of mortgages for landlords with a 25% deposit - the lowest amount many lenders will accept - has fallen from 606 to 540. This is a drop of more than 10%.
The reduction in choice has been attributed to new Bank of England rules that have required lenders to impose new affordability tests on landlords. Many lenders now require rent of £145 for every £100 of mortgage interest whereas previously most only required rent of £125 to cover a £100 per month payment.
Moneyfacts' Charlotte Nelson says: "Lenders appear to be withdrawing products to get back to just a 'core' range in an attempt to wait and see what other providers will be doing in the run-up to April."
Lenders expected to offer more 'limited company' buy-to-lets
Recent reforms regarding the tax treatment of rental profits and the stamp duty payable on second homes have made it tougher for many landlords to profit from property. They have also had a negative impact on the buy-to-let market in the UK.
Data from the Council of Mortgage Lenders released in December suggested that buy-to-let borrowing was down by 21% year-on-year. National estate agency haart has reported that the number of properties bought by private landlords was down 64% year on year.
To tackle tax changes going forward, many experts believe that increasing numbers of investors will choose to borrow in a 'limited company' as companies are so far unaffected by the income tax change.
Figures from a leading mortgage broker show that 69% of buy-to-let purchase applications in the final three months of 2016 were made through limited companies, substantially higher than the 21% recorded before the changes to tax relief were announced in July 2015.
At present, only a small number of specialist lenders offer buy-to-let mortgages to limited companies as this is a more complex type of lending. However, analysts believe this number could grow as demand for these products increases.
Mortgage expert David Whittaker adds: "Although many mainstream lenders do not yet have an offering for investors using limited companies, many smaller lenders have significant expertise when it comes to servicing this part of the market.”