Buy-to-let landlords could be ‘trapped’ by harsher affordability tests – S&P

Ryan Bembridge

January 24, 2018

Most recent buy-to-let investors will struggle to remortgage onto similar terms due to stricter underwriting requirements, a Standard & Poor’s study has warned.

The report concluded that 81.1% of UK investors who took out loans between 2014 and 2016 would struggle to maintain the same leverage if they applied now, while they would typically need to go down the loan-to-value scale by 9.4% in order to remortgage.

And in another stark prediction S&P said 62.5% of loans originated from 2014 to 2016 will become loss-making by 2021 when the reduction in mortgage tax relief takes hold.

Investors in Northern England were identified as being most at risk due to low levels of rental growth in both the North East and North West in recent years.

Despite the negativity S&P ruled out a “fire sale” scenario as the tax changes will only kick in slowly and a number of loans will remain profitable.

Leading up to 2016 landlords were typically stress tested against an income coverage ratio of 125%.

But currently the income coverage ratios are typically between 140% and 145% against a rental income of 5.5%, or 2% above the pay rate.

S&P’s report is entitled ‘Buy-To-Letdown? Recent RMBS Loans Will Struggle With The Perfect Storm Of Regulation And Tax Hikes’,

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