Another lender clamps down on landlords - but could Brexit rescue buy-to-let?
07-01-2016
Man using the cashpoint machine outside the branch of TSB Bank. East Street, Chichester
TSB has tightened its rental cover requirements Credit: Alamy
By Olivia Rudgard
TSB has become the latest lender to make it harder for landlords to borrow buy-to-let mortgages, by reducing the amount it is prepared to lend relative to a landlords' rental income.
This is just the latest in a series of tax increases and other difficulties facing landlords.
But analysts say Brexit may offer some relief to the sector: if house prices fall faster than rent, landlords' yields could rise. The difficulty in obtaining mortgages might also be eased, as the rent would cover more of the interest cost.
TSB has upped its "rental cover requirement" - the amount that landlords have to take in rent relative to their mortgage payments - to 145pc.
The decision follows similar moves by Nationwide's buy-to-let arm, The Mortgage Works, and Barclays.
Lenders are reacting to a consultation by the Bank of England which could tighten requirements for buy-to-let lenders, forcing them to take into account other costs incurred by landlords, such as tax.
The consultation closes tomorrow and the outcome is set to be announced later in the summer.
Experts say the move was expected - but that lenders could push their requirements even higher once next year's tax changes start to bite.
Britain's biggest landlord caught in Brexit turmoil - as he attempts to sell 1,000 properties
From next April landlords will face tougher tax rules which restrict their ability to offset their mortgage interest against their rental income.
David Whittaker, of broker Mortgages for Business, said that rental cover requirements could rise even higher once these are introduced.
"Mathematically speaking, it makes sense for higher-rate taxpaying landlords to need rental cover at 156pc, and additional-rate taxpaying landlords at 167pc.
"So this could just be the first step."
The harsher rental cover requirements are expected to affect landlords in low-yielding areas, where house prices are high and rental income relatively low, such as London and the South East, particularly badly.
However, David Hollingworth, of mortgage broker London and Country, said that Britain's exit from the EU could provide relief for landlords looking to expand in these areas as house prices freeze or fall.
"If prices were to plateau or even come down a little bit that could help them add to their portfolio. Obviously it's not great for their existing properties, but it could provide a little bit of relief.
"These tougher rental requirement are going to put a limit on how much landlords can expect to borrow. Where prices have been rising that has made it even harder, so a fall in prices could ease that off a little bit," he said.
TSB, which split from Lloyds in 2013, has expanded its buy-to-let arm during the past year.
The lender said that it was reacting to other banks' decisions to change their rental cover requirements.
Roland McCormack, intermediary director at TSB said: "Today’s change will bring TSB in-line with other lenders in the market.
"We will continue to work with brokers, through our award-winning service, to best guide landlords through this change."
Have you struggled to get a buy-to-let mortgage? Let us know: olivia.rudgard@telegraph.co.uk