At the end of September, new buy-to-let lending rules are set to be introduced in an effort to reduce irresponsible lending in the sector. This could have a big impact on portfolio landlords with more than four properties, making it more complex, and potentially more difficult to borrow money.
Is this the end for buy-to-let landlords? Of course not!
Buy-to-let property can still be an excellent investment, and as long as landlords choose the right properties, and get the right support, there are lots of opportunities! In this post, we take a look at the new regulations, the potential impact on buy-to-let investors, and the steps portfolio landlords in Hull can take to minimise the impact of the new rules.
The new regulations explained
From October 1st, tough new lending rules are being introduced, which will impact on landlords with more than four properties, when they are looking to apply (or reapply) for buy-to-let mortgages. The new legislation has two main components:
- Portfolio viability
When landlords make an application for a buy to let mortgage on a new property, they will have their entire portfolio of properties assessed for viability and affordability, as opposed to just the property they are mortgaging. - The stress test
When it comes to affordability checks, lenders will need to check that the landlord can afford repayments if interest rates were to rise to 5.5%. In addition, they may need to see proof of income and a written business plan before agreeing a mortgage.
The Impact of the New Regulations
These new rules are likely to impact on buy to let landlords in the following ways:
- A lot more paperwork – as a minimum, landlords will need to provide additional proof that their portfolios are making money, and the new property is viable.
- The lending market shrinking – some lenders are likely to leave the buy-to-let space entirely, as the extra workload and paperwork makes it unviable. This in turn could lead to…
- Higher fees and interest rates – as the mortgage application process becomes more difficult and time consuming for the lenders, they will pass on costs to borrowers.
Inevitably, this will have an impact on landlords – and it will hit those with larger portfolios hardest. Providing paperwork and providing viability becomes more difficult in larger portfolios.
Working around the rules
However, there are steps that landlords can take to minimise the impact of the new rules…
Portfolio ownership structures
The new rules only impact on privately owned portfolios, and not those held in a limited company. One option is for landlords to purchase new properties through a limited company. Borrowing as a limited company will increase the cost of lending, but may prove cheaper in the long run.
Whilst it is possible for transfer existing property portfolios into a limited company, this does come at a cost – creating both stamp duty and capital gains liabilities.
Spring cleaning the portfolio
The new rules are an excellent time to address any ‘bad apples’ in the property portfolio – properties that aren’t making money, and could impact on your ability to borrow under the new rules.
Whilst some lenders may look at the portfolio as a whole, others may need all properties to be viable and making money. If that’s the case, then taking steps to improve property that’s performing poorly or even sell it will help to increase the chances of mortgage applications being accepted.
Buy-to-let opportunities in Hull
Find and purchase the right rental properties in Hull, and there is still real money to be made as a buy-to-let landlord. The city is on the up, prices are affordable, and the rental market is buoyant – make the right decisions, and you can build a profitable portfolio that delivers excellent returns.
There are pitfalls, and it’s vital that you make the right decisions. Getting the support of a high quality lettings agency you can trust will make all the difference.
Investing in Hull buy to let property – with support from CJ Property
At CJ Property, our team are property management experts – we’ve been helping landlords and property investors to maximise returns, develop successful portfolios and grow their wealth since the mid-1990s.
Whether you’re an existing investor, or new to the world of buy to let property, we are here to help – from finding the right, desirable properties in the right areas, to looking after your portfolio and managing it on your behalf.
Start your investment journey today with a free, no obligation consultation with CJ Property – the Hull buy to let investment specialists. Call 01482 645270 today for further information.
CJ Property