Landlords face buy to let mortgage restrictions

Landlords are expected to face buy to let mortgage restrictions after one lender changed its criteria to demand that rental income was increased before a loan is agreed.

The Mortgage Works said it is increasing the amount of rental cover required – which is how much a landlord needs to receive in rent in relation to their mortgage repayments – from 125% to 145%.

In addition, the firm, which is the buy to let lending arm of Nationwide, will also not loan to landlords with less than 20% of a deposit and their minimum criteria is now 25%.

The move is the Nationwide’s response to an announcement in March from the Bank of England insisting that buy to let mortgage lenders tighten their lending criteria when offering landlords buy to let mortgages.

Industry experts are now forecasting that anyone wanting to invest in property will need a 40% deposit for any potential property investment.

The managing director of Mortgages for Business, David Whittaker, said the Nationwide’s move did not come as a surprise and other lenders will follow suit.

He explained: “The Mortgage Works is one of the biggest buy to let providers and they have taken the lead and demonstrating to the regulators and the market that it understands the tax relief changes.”

Mr Whitaker said that more lenders will make announcements after the outcomes of their recovery and resolution plan, which is effectively stress testing their lending abilities, is known while others, he claimed, will simply ignore the demands from the Bank of England to improve their financial position and lending criteria.

Call for tenants’ rent cap

 

Meanwhile, a councillor has called for tenants who live on housing benefit in private rental properties to have a cap placed on their rent.

That’s the demand from Cllr Ron Woodley, Southend Council leader, who says that London borough councils who cannot house homeless people are now ‘dumping’ them in towns such as Southend.

He says that London councils are sending tenants to other towns where rents are cheaper because authorities in the capital, particularly in wealthier areas, struggle to find affordable private rented homes since the housing benefit element of Universal Credit does not cover high rents.

Mr Woodley said: “The government should be looking at those living in the private rented sector and who are subject to housing benefit reduced rents to match those of social housing.”

He added that other European countries have rent caps and the move would also help prevent rents from ‘running out of control’.

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