Buy-To-Let Borrowers Face Shortages
Many buy-to-let investors are experiencing a growing increase in the difference between their mortgage payments and the rent they can collect on their properties. Rental incomes are falling evenly across the UK. Nationwide they dropped an average of 5.70 per cent to 5.50 per cent. London is experiencing a 2 per cent greater decline.
Buy-to-let lenders are optimistic. They claim that the situation is stablising. One company, Landlord Mortgages surveyed the profits across Scotland, England, and London. The survey suggests that the markets are becoming linked. Brokers are predicting that this might lead to above average rental profits in smaller areas. Landlord Mortgages suggests that smaller areas like Bath and South East Avon will offer more of an investment on return than larger regions like Scotland or the South West.
The problem is blamed on the drastic rises in house prices combined with the increases in interest rates. However, there are several factors. One difficulty was brought on by the Government’s new regulations regarding rental units, which force landlords to invest thousands of pounds into upgrades in each unit.
Mortgage lenders added to the problem by changing their criteria for borrowers, and putting a greater financial stress on their customers. One change that hit the market in recent months is an increase in the minimum rental coverage from 125 per cent of the mortgage’s repayment to 115 per cent. Despite optimism on the part of lenders, recent statistics have shown that rental profits have dropped every quarter this year.
This has left buy-to-let owners with few options. Borrowing enough to meet the government regulations and upgrade the units to attract a higher class of renter, or selling outright, appear to be the only options for many landlords.