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Experts have predicted that the buy to let market is moving towards a situation where only those with a 50% deposit are likely to qualify for a mortgage.
Lenders are tightening their criteria for new applicants and Barclays has cut buy to let lending.
The link between rental income and monthly mortgage cost is being altered by a number of lenders with landlords either having to increase the rents they charge tenants or borrow less money.
The lender previously required landlords to have a rental income of 125% of the monthly interest, calculated at a mortgage rate of 5.79%, however this has increased to 135% at 5.79%.
Barclays is one of the first lenders to take action just as the Bank of England’s Financial Policy Committee (FPC) has identified the buy to let sector as one of the main risks to financial stability.
BM Solutions, the biggest buy to let lender has also tightened its criteria with investors now needing a monthly rental income of 125% of the mortgage at a rate of 5.49%, while borrowers with bigger deposits have a rate of just 4.99%.
A spokesperson for Discount Landlord said: “In order to match the monthly rental income levels that lenders are now beginning to set as criteria for qualifying for a loan, landlords may be inclined to push up rents.”
“With investors not able to borrow large amounts unless they have large deposits, landlords need to protect their rental income more than ever and ensure that void periods are covered with specialist Rent Guarantee and Legal Expenses insurance.”
It is expected that the Treasury will launch a consultation to giving the FPC additional powers which could include imposing further lending caps and strict new affordability requirements for borrowers.
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