Significant lobbying and discussions with the industry saw a slight concession. In 2016, Mr Osborne increased the 18-month period in which to replace the main residence to 36 months.
Add to this the changes being brought in by the Prudential Regulation Authority (PRA), and the situation has become even more difficult, according to Chris Ioannou, senior IFA for Prestige.
In 2016, the PRA expressed concern about the quality of buy-to-let investing, suggesting the growth of the market could be leading to potential problems with affordability and indebtedness down the line.
After a review, the PRA published its Underwriting Standards for Buy-to-Let Mortgage Contracts paper, which seeks impose macro-prudential regulation on the way in which lenders were providing and underwriting both complex and traditional buy-to-let products.
In particular, it said: "there is a risk that firms relax underwriting standards, thus affecting their safety and soundness. The findings suggested a need for microprudential action".
The paper proposed that all firms use an affordability test when assessing buy-to-let mortgage contract in the form of either a mortgage interest coverage ratio (ICR) or an income affordability test, where firms take account of the borrower’s personal income to support the mortgage payment.
It also proposed that firms consider:
- All costs associated with renting out the property where the landlord is responsible for payment.
- Any tax liability associated with the property.
- Where personal income is being used to support the rent, the borrower’s income tax, national insurance payments, credit commitments, committed expenditure, essential expenditure and living costs.
Mr Ioannou states: “These changes to lenders’ assessments and stress test rates may leave potential buy-to-let investors needing to put down far greater deposits to meet new lender criteria.”
Moreover, according to Legal & General Mortgage Club’s Mr Duncombe, this could lead to a contraction in the market, or at least a slowdown in new entrants.
He explains: “There is a consensus in the market that fewer landlords will enter the UK market, with existing landlords potentially increasing rents to offset their extra costs.
“Subsequently, many of our brokers think the buy-to-let market will shrink slightly over the next 12 months.”
New norm
All these changes have served to muddy the waters for buy-to-let landlords, especially when it comes to complex buy-to-let.
Martin Reynolds, chief executive of SimplyBiz Mortgages, has strong opinions on this. “The changes are far-reaching and punitive. They have created a new type of market.”
He adds: “Rental calculations and affordability are already here, with new portfolio rules to come in October.
“If you add in the new tax rules being phased in, and the 3 per cent stamp duty, you have a rapidly changing market.
“Helping clients is all about educating them on what has changed, what will change and where they can get the best advice.”
