Tuesday, 29 March 2016

How Will Consumer Buy To Let Regulation Affect The Sunderland Property Market?

The new Mortgage Credit Directive which came into effect on 21st March creates a new category of mortgage called the Consumer Buy-to-Let (CBTL)

It affects those becoming Landlords for the first time

Advice, services and products will be ‘regulated’ (covered by the Financial Services Ombudsman and financial Services Compensation schemes) in a similar way to how residential mortgages have been regulated following the Mortgage Market Review (MMR)

Image result for fca logo

Mortgage applications will be defined as CBTL in the following scenarios;
  • Moving home, purchasing a residence with a mortgage and renting out their old home
  • Inheriting a property and not selling it and re-mortgaging it as a rental investment property
  • Buying a rental investment property where the investor has not owned a rental investment property before or has only owned existing rental investment properties for less than 12 months
A ‘sophisticated’ or ‘experienced’ property investor will continue with unregulated BTL and commercial financial products and they will be deemed to understand the risks of this type of investment

CBTL lending will face tougher affordability calculations than BTL mortgage products, with stress testing against personal income as well as rental income - previously BTL mortgages were granted solely based on the rental income

The much publicised increase in BTL stamp duty and the reduction in mortgage interest relief may force many existing Landlords to sell and the new CBTL regulation (with its potential risk of higher interest rates combined with higher costs of entry to this market) seems designed to slow down the number of new entrants coming into the BTL market to take their place

So how will this affect the Sunderland property market?

Looking at each of the three scenarios in turn;
  • For those who need to rent out their old property to move on to a new one, the key will be how rigorous the new stress tests turn out to be (no-one knows at present), as if they cause similar rejection levels to residential mortgages post-MMR (where recent statistics show nearly 50% of applications are failing due to their inability to satisfy the criteria) then it may mean that those rejected for a CBTL will have little choice but to sell at 'firesale' prices - this could force prices down and could cause a general slowdown in the market as chains are broken
  • It may be a similar tale for those inheriting a property, however as in many cases the inherited property is mortgage-free the beneficiary could still rent it out but it may prevent them from remortgaging to release equity 
  • Inevitably the new regulation will make obtaining a CBTL more difficult for First Time Landlords, however given the returns from property investment (with it possible to achieve Gross Yields in Sunderland from 6 - 10%) still stand up well against other investments it may turn out to be a further annoyance/irritant rather than a deal-breaker
  • My other thought is that for those looking to invest in property long term it could be a further reason to consider doing so using a Ltd Company from day 1, as they would not face this CBTL regulation (however BTL lending for companies has traditionally been more limited in choice and availability than standard BTL lending to individuals used to be)
Unfortunately it's hard to tell the impact that this change will have on the Sunderland property market, as the impact will be determined by the stress tests applied to CBTL lending, and it will take some time to assess the impact

If you'd like to know more about any aspect of the Sunderland property market feel free to give me a call on 0191 567 8577 or email neil.whitfield@belvoirlettings.com


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