New mortgage rules to drive more people to private rented sector?
Posted by Gary Winter
Changes to mortgage lending rules could see demand for buy-to-let properties increase even further.
The restricted lending seen in the owner occupier mortgage market since the recession has made it increasingly difficult for many people to get on the housing ladder.
As a result, many are turning to rented accommodation instead, with this rise in demand also leading to higher rents for buy-to-let investors.
Now, it is feared that new rules on mortgage lending being introduced by the Financial Services Authority (FSA) could make it even more difficult for would-be home buyers to secure finance to purchase a property.
Under the FSA's proposals, lenders will be forced to verify the income of every mortgage borrower, while affordability checks will be tougher and borrowers will no longer be able to use interest-only mortgages as a cheaper alternative to a repayment deal.
Lenders will need to 'stress test' mortgages using predictions of future interest rate movements to ensure borrowers can still afford repayments even if rates rise.
If these rules had been in place during the pre-recession housing market boom, is it thought that 600,000 borrowers would have been denied mortgages.
While it is hoped these plans will prevent a repeat of the major factors of the 2008 financial crisis, it is likely to mean fewer people will be able to buy homes and hence the possibility of greater demand for buy-to-let properties.
The Association of Residential Letting Agents recently called on the government to do more to help grow the private rented sector so that it can help keep up with the rising demand from tenants.
A recent survey of the organisation's members found that 74 per cent of respondents believe that demand for rental property is outstripping supply, as has been the case for the past four quarters.
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