Buy to Let Affordability Test

Buy to Let Affordability Test.

The Chancellor the Exchequer, Phillip Hammond, has confirmed that via the Bank of England, it will impose new rules on banking groups when lending money on Buy to Let Mortgage investments.

Currently, there are strict rules on suitability and affordability for residential mortgages.  In short, a lender and/or mortgage broker is required to assess your income and expenses today to check that you can afford the mortgage repayments but also to stress test that same affordability with tests if interest rates go up and whether you can then afford the mortgage repayments.

With buy to ley mortgages, there are two types of mortgage deal, one that follows usual suitability and affordability but another where lending is not based upon your income but is based upon the rental income of a property known as “rental cover”.

Suitability and Affordability for Buy to Let

New rules will force lenders to drop “rental cover” or amend it to also include full income and expenses affordability tests.  In short, can you still afford the mortgage repayments if you have no tenant paying rent?

Third Attack on Buy to Let

This is the latest ‘nail in the coffin’ for buy to mortgages landlords. Already, we have seen attacks with the introduction of an additional 3% levy for stamp duty and also the reduction in the amount of tax relief you receive on expenses for a buy to let property by gradually reducing this to 20% for all, even if you are a higher rate taxpayer and would normally be able to offset expenses against 40%/45% income tax.

This third restriction on affordability will squeeze buy to let landlords even further.

Comment

The dream of building a property portfolio may now be over for many who planned this as a retirement option rather than pensions.

The reality is there is a housing shortage in the UK and Government want to encourage more landlords to sell up and release residential property onto the market for private home us.