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Are 60 per cent buy to let deposits really on the cards?

Mortgage firms insisting on landlords proving their rental income could cover 145 per cent of their monthly payments could lead to 40 per cent deposits being required - and in some cases, even 60 per cent. 

That is the view of crowdfunding platform Property Partner, which has undertaken research on cities and towns most likely to require 40 per cent-plus deposits for buy to let purchasers.

At the end of June, the Bank of England completed a consultation on new affordability checks for buy to let mortgages. These stress tests include an assumption that rates reach 5.5 per cent. When calculating how much to lend, banks will also need to factor in the landlord’s costs of letting the property and any tax liability.

Property Partner analysed mortgage affordability across 85 towns and cities.

Worcester in the West Midlands came top of list with the highest financial barriers to entry. The increased ICR would require a landlord buying an average-priced property there to put down at least a 61 per cent deposit, or £115,000 in cash terms.

Cambridge comes next with 60 per cent, followed by Chichester, Bedford and Lichfield - all over 55 per cent.

“The stricter lending rules expected to be introduced by the Bank of England follow April’s stamp duty surcharge of three per cent and from April 2017, the gradual withdrawal of mortgage interest tax relief will put further restraints on landlords’ profits” says a Property Partner spokesperson. 

“This lending squeeze will only increase the financial barriers to entry to the market, restricting access to only cash buyers or those with hefty deposits, and potentially forcing some existing landlords to sell up. Highly-leveraged landlords seeking to remortgage could face a nasty shock, if their bank tells them they no longer qualify for the same loan-to-value mortgage” he says.

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