New regulations that come into force next September will see borrowing costs climb for landlords with four or more buy-to-let properties, says James Pickford in the Financial Times. This is the latest in a string of measures designed to clamp down on buy-to-let investing.
Currently, most mortgage providers assess buy-to-let loans on the basis of whether the property will bring in enough rental income to cover the mortgage. Under the new regulations, for anyone who already owns four or more buy-to-let properties, lenders will have to check the viability of the landlord’s entire portfolio before being able to offer a mortgage on a single property.
This will lengthen the underwriting process for lenders, raising costs and likely meaning higher rates of interest for many landlords with larger portfolios. There is little data available on how many landlords this will affect, but according to a 2010 government survey, 78% of landlords own one property, while just 3% owned more than five homes.
It’s not all doom and gloom, says Sarah Davidson on ThisisMoney.co.uk. There is a growing number of specialist buy-to-let lenders with existing “robust underwriting standards” and their processes are unlikely to change much. Brokers have access to many more lenders than you “see on the high street or even online”, and they often get “preferential rates” for clients with more complex needs, such as multi-occupancy properties.
But even if landlords do find a suitable lender, there are other headwinds to battle. Following the removal of the wear and tear allowance and the introduction of a 3% stamp duty surcharge in April this year, as of April 2017, landlords who own buy-to-lets in their name will no longer be able to deduct all of their mortgage interest costs from rental income when calculating the tax owed, says Olivia Rudgard in The Daily Telegraph.
The relief will be phased in over the next three years. “Hardest hit” will be higher-rate taxpayers and those with large mortgages. Since landlords who own properties through a limited company are not affected, it may be worth incorporating. Others may simply sell up. A survey of 1,000 private landlords found that 25% have already sold or plan to sell. Savills expects the number of buy-to-let transactions to fall by 33% over the next three years.
11,000 new homes and no one to buy them
The number of unsold homes being built in central London will reach a record high this year, “increasing the risk that developers’ bets on rising demand for luxury properties will go sour,” says Sharon Smyth on Bloomberg News. The amount of residential properties that are under construction, but that do not currently have a buyer, will hit 10,829 by the end of 2016, a 24% increase on the end of 2015, according to a report by property consultancy Molior London. The number of unsold completed units will jump from 285 to 779.
Developers have started construction on more new homes than they have sold each year since 2012, says the report, resulting in “a glut that could cause house prices to fall”. This year’s figure will be the highest since Molior began collecting data in 2009. With the average asking price for new homes in central London still standing at more than £1,000 per square foot, it will take more than 2.3 years to sell the homes under construction, according to the report. This compares with 1.25 years at the end of last year.
House prices in prime central London (an area which includes Knightsbridge and Westminster) have already started to drop, according to data from estate agents Knight Frank. Prices saw a decline of 1.8% in August and 2.1% in September – the biggest falls since October 2009.
In addition to uncertainty brought about by Britain’s vote to leave the European Union, a decrease in demand can also be partly attributed to the increase in stamp duty payable on second homes and buy-to-let purchases. Prices in London’s prime locations could fall by as much as 9% this year, predicted estate agents Savills in September.