Will new mortgage lending criteria force rents up even higher?
Next year, new guidelines for mortgage lending criteria come into force prior to new tax rules and this could mean that buy-to-let investments are just for wealthier or more experienced investors which will make it harder for first time investors to enter into the market.
Following on from the increase to the minimum rental cover which had been introduced by the big four Banks it now means that the rent on any property has jumped from 135% to 145%. This could lead to an increase in rent as landlords look to cover their costs. This is even more likely to happen when the new tax increases come in next year but it will also meant that investors will have to jump through more hoops in order achieve a loan.
From next year, the changes in tax will mean that private landlords will no longer have the tax relief benefits that they once had. This means that they will have to pay a higher rate of mortgage interest than they previously had to. This will lead to a tax bill that will be twice the amount it once was for those who are already paying the higher rate of tax and this will force more homeowners from the lower rate of tax. All of this will lead to losses.
Barclays have made it clear why they have made their changes and it is all to do with landlords having the ability to meet any financial commitments. However, a research paper released by the Bank of England stated that the new tax changes coming into effect next year will not lead to a decrease in demand for buy-to-let property.
For tenants, this could lead to an increase in rental costs.
These tax changes could make it even tougher for tenants, many of which are already finding it difficult. This does beg the question, what are the government hoping to achieve?
Landlords are already an easy target as they are not always popular but they are easy to blame. Causing the sector to reduce in size could be a bad move considering there is already a high demand for property and not enough supply and that is more than likely the real problem. For as long as homes are not built the price will remain out of reach for many which will lead to an increase in people having to rent. Therefore, the fact that private landlords are being strangled by these changes will result in supply being threatened and that will inevitably lead to a rise in rental costs.
All the changes that have come into effect such as the 3% increase on stamp duty for second properties as well as the tax changes will certainly alter the returns that landlords are currently experiencing. There is also every possibility that landlords may sell and this could improve the amount of properties on the market and this could help quash house prices slightly.
To deal with these issues, the Mayor of London has said that he would like to bring in a London living rent that would be supported by the government and will be set in each area and based on a third of the average earnings in that area.
For more information or to browse a range of buy-to-let property investments, please contact Hopwood House
Join the Tenant Referencing UK discussion forum on this topic by clicking here.