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According to a recent article in the Times, although the buy-to-let sector increased by 40% this year, as landlords rushed to beat the stamp duty rise, the sector is now waning. Landlords have been hit by a series of measures which will force them to increase rents or sell their properties.
Firstly a crackdown was announced on mortgage interest tax relief to be phased in from April next year. In April this year the Government introduced a 3% stamp duty surcharge on second homes and investment properties. Now tougher lending requirements are expected to be introduced by the Bank of England. The Bank’s Prudential Regulation Authority (“PRA”) will announce new rules within the next weeks which will make it harder for landlords with only one or two properties to borrow. Banks will have to ask landlords for higher rents in relation to their mortgage payments. From January the PRA will ask for evidence of rental income of 145% of their mortgage payments (rather than 125%) and stress rates of 5.5% (rather than 5.25%).
Unless borrowers are able to top up their rental income from their personal income, they will have to increase rents, sell or move to a new deal before lenders change their requirements.
Those considering a move into the buy-to-let sector or contemplating refinancing existing buy-to-let properties, should be considering taking action swiftly in anticipation of the stringent new lending criteria.
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