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The Government has announced plans to roll out further rules later this year in an effort to tighten control on private landlords. \u00a0The announcement comes as part of a series of new rulings for the buy-to-let sector.<\/span><\/p>\n Buy-to-let property owners will soon be\u00a0expected to prove they have liquidity when applying for finance by divulging their other assets, liabilities and tax positions\u00a0and shop bank statements. \u00a0Lenders will also require a business plan from the potential borrower, as well as details of the landlord’s purpose for the investment and an exit strategy.<\/span><\/p>\n Lenders will have some stretch on the PRA’s rules when assessing an application but are expected to request a landlord’s full portfolio. \u00a0Currently, lenders assess a new mortgage in segregation and presume any other properties are self-financing. \u201cNow you will have to prove they are,\u201d says Shaun Church \u2013 Director of Private Finance.<\/span><\/p>\n Only three lenders have announced their terms so far: Aldermore Bank, Paragon Mortgages and the Mortgage Works<\/span><\/p>\n The proposed changes to the system have been dubbed\u00a0“punishment” by former Tory leader Iain Duncan Smith who stated the Government needs to rethink its stamp duty and mortgage relief reforms. \u00a0\u00a0<\/span><\/p>\n \u201cIt is time for us to reconsider the way we treat private landlords who buy houses to rent. Many of them are talking about no longer buying to let, and they blame it on Osborne\u2019s decision to impose a stamp duty levy on the purchase of homes to rent, to restrict mortgage interest relief to the basic rate of income tax, and to tax a landlord\u2019s turnover rather than profits.<\/span><\/p>\n \u201cThis, they believe, has led to private landlords scaling back their operations or even leaving the sector altogether. We should all be concerned about this because private landlords are a significant provider of the additional housing we need.\u201d Stated the former work and pensions secretary.<\/span><\/p>\n \u201cIt is going to get harder for landlords. We are seeing lenders implement the changes early and some are pulling out of lending to portfolio landlords,\u201d says Mr. Church. \u201cYou need to be on top of it and thinking not just what life will be like in six months\u2019 time but years down the line.\u201d<\/span><\/p>\n ‘Portfolio landlords’, those with four or more mortgaged properties, will be the first to feel the effect of the changes. \u00a0The PRA stated, \u201clending to portfolio landlords is inherently more complex given the quantum of debt in aggregate\u201d.<\/span><\/p>\n Compared with the growth of 2% in owner-occupier mortgages the total stock of banks\u2019 buy-to-let mortgages is up by 40% since 2008. \u00a0Buy-to-let loans make up roughly 15% of lender\u2019s mortgage books, meaning that the apposition of banks could be jeopardised in the event of an influx of defaults.<\/span><\/p>\n The higher rate of 3 percentage points above the previous\u00a0stamp duty land tax rate (SDLT), which came into effect 1 April 2016 after the Bank of England stated that excessively indebted landlords posed a risk to the economy if they were unable to repay their mortgages, was introduced to provide \u00a360 million for communities in England, where the impact of second homes is especially poignant. The change in SDLT\u00a0means landlords are no longer able to claim tax relief on mortgage interest payments. \u00a0Tighter control of the sector means that by 2020 landlords will only be able to claim tax credit at the basic rate of 20%.\u00a0<\/span><\/p>\n Plans to control the buy-to-let sector have not been met with disagreement by all, however, with data <\/a>suggesting the tighter regulations on landlords will be beneficial to the economy.<\/span><\/p>\nWhat has changed?<\/strong><\/h3>\n
Controversial\u00a0Decisions<\/strong><\/h3>\n
How Will This Affect Landlords?<\/strong><\/h3>\n
Effect on the Economy<\/strong><\/h3>\n