A total of 74 deals were withdrawn from the market during December alone, according to Moneyfacts.

  • By Nicky Burridge

    January 10, 2017 10:30
  • What’s the latest?

    Buy-to-let mortgages have been pulled at their fastest rate for nearly EIGHT years as lenders braced themselves for tougher affordability rules.

    A total of 74 deals were withdrawn from the market during December, the biggest reduction in products since March 2009 during the global financial crisis, according to financial information group Moneyfacts.

    The drop, which saw the number of loans available to landlords fall to levels last seen in July 2016, was not limited to a few providers, but spread across the board.

    Charlotte Nelson, finance expert at Moneyfacts, warned that the fall in loans, combined with tougher affordability checks and reduction to mortgage interest tax relief in April, could prove to be a “lethal cocktail” for landlords.

    Why is this happening?

    While the buy-to-let market is usually quiet in December as everything slows down ahead of the Christmas break, last month saw a surge of activity as lenders changed their ranges.

    Nelson attributed the fall in products to lenders preparing for the new affordability criteria, which was brought in on January 1, as well as additional changes due to be introduced in September.

    Lenders are also likely to be weary of the impact April’s tax changes will have on landlords.

    She said: “Lenders are perhaps withdrawing products to get back to just their core range in an attempt to wait and see what other providers will be doing in the run up to April.”

    Flat for sale in Wokingham.

    Above: three-bedroom flat for sale on Wiltshire Road, Wokingham. 

    Who does it affect?

    People with only a small deposit are likely to be hit hardest by the new rules restricting the amount landlords can borrow.

    The largest reduction was for loans with a 25% deposit, with product numbers falling from 606 to 540 in just one month.

    But it is worth noting that despite the steep reduction in mortgages seen in December, there are still 1,408 different products available, up from 1,256 in January 2016.

    Sounds interesting. What’s the background?

    The Prudential Regulatory Authority introduced a new stress test the beginning of the year under which lenders must make sure landlords’ rent would still cover their mortgage repayments if the interest rate on their loan rose to 5.5%.

    Many lenders have also increased the rent coverage they require to 135% or 145% of monthly mortgage interest payments, up from 125% previously.

    From September this year, they will also have to look at landlords’ total portfolios if they own more than four properties.

    These changes come on top of the introduction of the 3% Stamp Duty surcharge for people buying a second home, while mortgage interest tax relief is also being scaled back in April.

    Top 3 takeaways

    • Buy-to-let mortgages have been pulled at their fastest rate for nearly eight years as lenders brace themselves for tougher affordability rules.
    • A total of 74 deals were withdrawn from the market during December, the biggest reduction in products since March 2009.
    • The drop, which was seen across the board, pushed the number of loans available to landlords down to levels last seen in July 2016.

    You may also be interested in...

    Are you buying a buy-to-let property? Tell us by posting a comment below...

    * DISQUS *
    comments powered by Disqus