According to the Financial Times, starting September all financial institutions issuing loans to those with four or more buy-to-let properties will have to review their portfolio.
This is said to be partly because mortgage arrears tend to be higher with landlords who own more properties.
This change will mean fewer loans being made available to multi-property owners, but some experts believe that specialist lenders such as Aldermore and Paragon will fill the financing gaps and lessen the impact on the buy-to-let market.
These new Bank of England rules will also require lenders to apply ‘stress tests’ on loans at 5.5% interest rates and ensure a rental cover of at least 125% on mortgage repayments. Some lenders are already asking for a higher cover of 145%.
Birmingham Midshires, a subsidiary of Lloyds Banking Group, recently announced a change to its lending terms. It is increasing the rental cover from the standard industry rate on new loans to those in the higher and upper-rate tax band. Earlier this year, Barclays and the Mortgage Works, a Nationwide subsidiary, increased their rental cover rates from 125% to 135 and 145% respectively.
Landlords will no longer be able to offset all interest on their mortgages against their tax bills, which will now be based on gross rental income, less a 20% rebate on mortgage interest. This means that more buy-to-let investors will be in higher-rate tax brackets, doubling their effective bill and making tax payable even on annual losses.