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Buy-to-let investors: don’t fight the government
The government has given another clear signal that it has the buy-to-let business firmly in its sights. Avoid at all costs, says Merryn Somerset Webb.
Beware: the government has buy-to-let firmly in its sights.
We've warned against getting too enthusiastic about the buy-to-let business for some time. The political tide is turning against it as is quite clearly shown by the stamp duty surcharge on second properties and the huge changes to the tax deductions allowed on mortgage interest and wear and tear.
But this week brought another clear signal that the authorities have buy-to-let in their sights. The Bank of England's Prudential Regulation Authority has produced new rules on buy-to-let mortgage lending.
Lenders will now be required to make sure that borrowers will still be able to pay their mortgages if interest rates were to rise to 5.5% up tofive years after they take it out. They will also be obliged to make sure that the income from a property will be 125% of the mortgage payments.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Some lenders will already have similar stress testsin place (it isn't a surprise the consultation began in March,and lots of lenders have already moved to 145% to takethe falling value of buy-to-lettax breaks into account). But many won't.
The result will be fewer buyers in the market (particularly in the Southeast where yields are super low) and in time a fall in house prices.
That's bad news for current buy-to-let investors hoping to get out with significant capital gains, but good news for first-time buyers looking to get into the property market in a year ortwo.
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
