BTL - more stress for landlords!

Investing in property seemed such a straight forward game not so long ago. You buy a property, find some tenants and watch the money roll in. Ride the market, watch your property rise in value, remortgage and off you go again with another property. Building a portfoilio seemed as easy as riding a bike. Now the road ahead is filled with potholes and if you are not careful you could snag a puncture or worse fall off the bike.

The latest potential pothole comes in the form of a tightening up of criteria by a great number of lenders. Every BTL investor has always been aware that the rental income had to be sufficient to meet the mortgage - the lender's stress test. There had previously been a pretty soft test which meant that the rental had to be more than 125% of the interest rate set at an arbitrary figure by the lender of around 5%. So if you want to borrow £100K and the criteria is 125% at 5% then the rent that you would need to achieve would be £100K x 5%pa x 125% = £520.

The lenders however have changed the goal posts in the last couple of weeks with, to name but one, The Mortgage Works now insisting on coverage of 145% at 5.49%. This means that you now have to find a tenant that is prepared to shell out £663 - an additional £143! If your letting agent is not prepared to confirm that this is achievable then I'm afraid you ain't getting the mortgage.

This is just one of a number of changes that the lenders are now rolling out in relation to criteria for BTL. If you need some advice on these changes and how they are going to affect your ability to borrow to fund your next property then do get in touch and I can explain.