Bank of England is monitoring Buy-to-Let in Lock-out Scare

Bank of England is monitoring Buy-to-Let in Lock-out Scare

Buy-to-let landlords could need a deposit of 40pc to get a mortgage across the UK.

Research by Property Partner has found that prospective lending criteria from the Bank of England could 'lock out' landlords in 59 of 85 researched towns and cities.

Across the UK, towns and cities on the potential 'lock out' list include Blackpool, Carlisle, Liverpool, Sheffield, Derby, Norwich, Cambridge, Bristol, Brighton, Poole, Chelmsford and Worcester (see example).

The Bank of England is proposing a way to ensure long-term sustainability on mortgage repayments. Higher rental coverage requirements will put a limit on how much landlords can borrow, and as such landlords may need to bridge the gap between mortgage and purchase price with a larger deposit.

The calculations from Property Partner used a 145pc rental income average - that is, landlords would need to have monthly rental income equal no less than 145pc of the monthly mortgage repayment. The Bank of England can ensure this by lowering the mortgage repayment of the landlord, hence the introduction of higher initial deposits.

Mark Carney said: "[Buy-to-let] is something that we are watching closely. The core of this system is very strong. We may see some volatility, we may see things move around, but the system is going to be there for someone who wants to buy a house, or a business person with a viable plan."

David Hollingworth from London & Country said: "Buy-to-let mortgage rates are exceptionally low, which spells good news for landlords looking to manage their costs.

"However, as more lenders tighten their criteria in response to the consultation paper it will mean that the amount landlords can borrow will become more limited to give a better buffer against any potential increase in costs.

"That could mean that a bigger deposit will be required to make up the difference between the available mortgage and the purchase price."

For Example:

The average property price in Worcester is £188,694 and the average rent is £492pcm.

If a lender required a 125% rental coverage at a stress rate of 5.5%, the £492 rent would support a mortgage of £85,876.

A lender now applying stricter criteria of 145pc rental income for the same rent would be able to lend £74,031 of the total property value.

Therefore, to meet that 145pc requirement, a landlord would need to pay a 61pc deposit (LTV 39pc) of £115,103 to be able to meet the purchase price of £188,694.

Contact London & Country today to get the best mortgage advice while rates are low.

The full findings from Property Partner can be found in this PDF.

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