Interest rates remain the same
Landlords with mortgages will doubtless be a little disappointed that the Bank of England decided against reducing interest rates on Thursday, despite Governor Mark Carney’s heavy hints that a cut was on the cards.
Mr Carney said he wanted to wait a little while longer to see what impact last month’s vote by the UK to leave the European Union has on the markets before taking any action.
However, there are still plenty of reasons for landlords to breathe a huge sigh of relief this week.
The first is that the pre-EU referendum threat by Mr Carney that a vote by Britain to leave the European Union would ultimately lead to a three percentage point increase in interest rates seems to have been just that, a threat.
It now appears far more likely that interest rates will remain low for some time to come.
Some commentators are still expecting a rate cut to 0.25 per cent, possibly when the Bank’s Monetary Policy Committee meets again in August.
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Secondly, as far as mortgage lenders are concerned, it’s still “business as usual”, despite all the talk of doom and gloom. Unlike during the credit crunch in 2008, mortgage lenders haven’t run for the hills and withdrawn buy-to-let products.
On the contrary, a few have cut their interest rates in recent weeks in order to stimulate what has become a sluggish market since the increase in stamp duty for property investors came into effect in April.
What does the future look for mortgage lenders?
Furthermore, some lenders have reduced the level of deposit they’re asking landlords to provide so, far from trying to restrict borrowing, they’re trying to encourage us to borrow more!
This is despite all the fears that Britain, and particularly London and the southeast, is on the brink of a property price crash.
However, it is expected that there will be some tightening of buy-to-let lending in the near future, partly due to measures being introduced by the Prudential Regulation Authority to ensure landlords don’t over-stretch themselves.
Banks and buildings societies also want to see that landlords buying property now will still be able to afford their interest payments once the former Chancellor George Osborne’s tax changes for BTL investors are introduced next April. From then, landlords won’t be able to offset their mortgage interest from their rental income when working out their taxable profits.
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As a result some lenders, including Barclays, TSB and Nationwide’s BTL arm The Mortgage Works, are already requesting that landlords provide proof that their rental income will cover 145 percent of their mortgage payments.
In areas where rental yields are low, this could mean landlords might only be able to borrow 40 percent of a property’s value, rather than the usual 75 to 80 percent.
Existing landlords need to bear in mind that any tightening of the lending criteria could prevent them from switching lenders are releasing equity by re-mortgaging.However, the fact that the Bank of England seems determined to keep interest rates low means that buy-to-let still remains one of the most attractive forms of investment around.