It is anticipated that tens of thousands of private landlords in the UK will face struggles, over the next few months, in their quest to remortgage their property. A wave of investors obtained mortgages in March 2016, looking to avoid the 3% surcharge for new buy-to-let and second home buys, of which came into effect the month after.
A large proportion of landlords will now need to refinance, with the end of their current deals closing, before automatically being put on the standard, yet significantly higher, variable rate set by their lenders. Many of these landlords will find it tough to remortgage, and there are a number of reasons for this.
When compared to two years ago when attractive mortgage deals were agreed, there are now much tighter lending criteria that may prevent landlords from remortgaging. There will be many circumstances where landlords are unable to remortgage, with the potential that their options will be limited and only able to do a product transfer with their lender. This significant lack of options and the difficulty in finding the finances that they need may see the number of landlords reducing significantly in the early stages of 2018.
Factors affecting buy-to-let mortgages
Over the last couple of years, there have been a number of changes that will all have an impact upon the buy-to-let mortgage market in some way or another. As the government have introduced new laws and regulations to the way that market works, landlords are likely to be affected, especially when looking to remortgage their buy-to-let property.
Tax relief reductions – The government have introduced a new regulation regarding the tax relief that landlords are allowed for their property. The amount in which the landlord can claim back as part of the tax relief has been reduced, and is set to continue to reduce year on year, until it reaches the new standard rate.
Stamp duty charges – In 2016, investors looked to snap up their properties before the stamp duty deadline, meaning that they would save thousands of pounds when compared to buying their property after the stamp duty deadline. The deadline had a huge role to play in the big spike in housing transactions in March 2016, but for any property purchases going forward, the stamp duty charge will apply to landlords.
Stress-testing rules – This was introduced with the sole purpose of reducing risk. Landlords are now required to generate more rental income under these new rules, to ensure that their mortgage costs are covered, even in the event that interest rates increase. As part of this, the rental income and mortgage payments are assessed, ensuring that interest rate increases won’t be detrimental to the landlord.