Buy–to-let lending restrictions will harm supply

The tenant eviction and rent recovery firm is warning landlords that changes to the mortgage lenders conditions could make it more difficult to find a buy-to-let loan or to remortgage an existing deal.

The Bank of England recently told banks not to give more than 15% of new home loans to home buyers borrowing more than 4½ times their annual income.

It also told lenders to perform stricter tests to ensure borrowers can repay their loans when interest rates start to rise.

Although lending in the buy-to-let market wasn’t covered by the tougher rules announced by the Bank of England, it is believed that the rental sector is to be closely monitored to ensure private landlords don’t take on debts they may struggle to repay.

Graham Kinnear, managing director at Landlord Assist, said: “The banks are being asked not to provide a loan of greater than 4.5 times income for the vast majority of their loans and being asked to stress test applications to see if people can afford the mortgage if interest rates were to go up by 3%.

“Whilst this is in place for the owner occupier market we can see a situation where this is, in some form or another, extended to the buy-to-let market as well.

“Clearly, we do not advocate landlords taking loans out which they can’t afford when interest rates go up but it is important that the income those properties generate is included within any affordability calculations.”

Stephen Parry, commercial director at Landlord Assist, added: “Many landlords have no employed income but have a property portfolio which pays the mortgages and provides them with a surplus as an income.

“We would not want to see these people struggling to remortgage onto competitive rates should they wish to do so.”

Landlord Assist is concerned that imposing restrictions on lending in the buy-to-let market could reduce the supply of rental accommodation in the UK at a time when it is most needed.

Mr Kinnear adds: “There is a strong and growing rental sector and there is a clear need for the amount of available property to rent to increase to meet this growing demand. Making buy-to-let borrowing more difficult could have the reverse effect and leave the market in a painful cycle of increasing rents and reduced choice.”