Landlords. How will September 2017’s buy-to-let changes affect you?
George Osborne may now be having the time of his life in his dual role as editor of London’s Evening Standard and Theresa May’s nemesis, but his work as chancellor certainly lives on.
This month, new rules governing buy-to-let mortgages and lending – plans that were introduced on Osborne’s watch – finally come into force. Depending on whom you believe, the idea behind them is either to stamp out irresponsible lending or to give first-time buyers a better chance of owning their own home. Or possibly both, for things are rarely clear-cut when it comes to politics.
If you are a buy-to-let landlord, or are thinking of becoming one, the new rules may hit you hard. So what has changed?
It’s your portfolio that matters
Until now, lenders would give you a mortgage based on the viability of the property you wanted to borrow against.
They can’t do that any more. Instead they have to look at your whole property portfolio. If all of your properties are pulling in more income that you are spending on mortgage payments, then you’ll probably be fine. But if you have one or more properties that are making a loss, then some lenders might suck their teeth and shake their head rather than give you the mortgage you need.
The key point is that, if you have properties that are losing money, you may wish to dispose of them or take steps to make them profitable before seeking a mortgage on another house or flat.
Plus: a new stress test is more… stressful
This year has already seen new stress tests applied to buy-to-let mortgages. In a nutshell, the bank or lender has to check that you can afford repayments if interest rates were to shoot up as high as 5.5%. Could you?
Naturally, many lenders will want you to do as much of the work as possible, so they may ask you to prepare a business plan. Even if your portfolio is generating a healthy profit, and you’ve got high hopes for a new property, the fact remains that you’ll probably have to do a lot more admin to get your hands on the mortgage.
Is it worth it?
One thing that’s certain about politics and changes to legislation is that the Law of Unintended Consequences always continues to apply.
Making buy-to-let mortgages harder to obtain is likely to reduce the number that are granted. But that doesn’t necessarily mean more people will get on the property ladder. It isn’t difficult to predict that many remaining landlords will just hike up their rents, leading to situation where we have fewer and more expensive rented properties, plus little or no reduction in the number of people who can’t afford to buy their own home.
So, if you’re thinking of getting a buy-to-let mortgage from this month, it’s best to do your homework. Talk to one of THP’s accountants and we’ll help you get your portfolio in shipshape condition before you apply to any lenders. There’s still money to be made as a landlord but from now on, you’ll need to be that little bit better prepared when you apply for your next buy to let mortgage.