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Stress Tests for Buy-to-Let Landlords

Bad News for BTL, Good News for FTB?

Stress Tests for Buy-to-Let Landlords

We are seeing little decline in the Buy-to-let mortgage market even though yields have reportedly dropped. Currently landlords face some challenges with higher taxes and tighter rules on lending.

Rental income is subject to tax and BTL landlords can offset mortgage interest income against rental income. However, this will all change next year. It was announced in the summer budget that from April 2017 landlords will no longer be able to deduct mortgage interest from the rent payments for tax purposes.

Bad news for Buy-To-Let investors, good news for First Time Buyers?

On top of this, The Bank of England’s Prudential Regulation Authority has confirmed that tighter regulations will apply to lenders providing mortgages for buy to let investors. 

Lenders will now be required to make sure that borrowers will still be able to pay their mortgages if interest rates were to rise to 5.5% up to five years after they take it out. They will also be obliged to make sure that the income from a property will be 125% of the mortgage payments. This is where the commercial finance expertise of a specialist Buy to Let mortgage broker can help.

Stress tests may be bad news for current buy-to-let investors but they could be good news for first-time buyers looking to get into the property market in a year or two. There’s now the possibility of fewer buyers in the market and – in time – a fall in house prices.