LETTINGS NEWS: Landlords face prospect of 40% deposits
According to Countrywide, landlords applying for buy-to-let mortgages may soon be required to pay a minimum deposit of 40% and face additional stress tests as a consequence of the Bank of England’s request for extra powers to direct lenders.
Currently, most lenders assess landlords by assessing whether the rent generated on the relevant property will cover 125 per cent of the interest component of the mortgage. The interest rate against which the borrower’s ability to meet repayments is assessed is at the discretion of the lender but, typically, has been around 5% over the last two years.
The new Bank of England powers have still to be formally granted, however, Countrywide fears that the implementation of stress testing alongside a potential rise in interest rates would be problematic for landlords. It shows that if landlords were stress tested against an interest rate of 7%, a third of recently-mortgaged landlords would have had to increase the amount of equity they put down to around 40%.