Buy to let borrowers could need 40 per cent deposit warns Countrywide

Buy to let borrowers in London and the South East may need a 40 per cent deposit to secure a property under potential new rules, Countrywide has warned.

The prediction from the estate agency could occur if proposals from the Bank of England to strengthen its market powers come in to force.

Such new rulings could mean around a third of landlords in the capital and surrounding areas could require a 40 per cent deposit to obtain finance, the firm claimed.

The prediction is based on the introduction of a similar stress test to the one that is currently applied to owner-occupiers under the Mortgage Market Review.

That is typically in the region of seven per cent, while current buy to let lenders generally test a loan at five per cent – meaning larger deposits would be required.

According to Nick Dunning, group commercial director at Countrywide, most landlords would pass any new stress tests as property in other areas of the country provides a higher return on investment.

“Stress testing of new loans for investors has the potential to increase the entry barriers for would-be landlords,” he said. “It will primarily affect areas in the south of the country and areas where yields are lower.”

Should the proposals be implemented, landlords will require increasingly larger deposits according to Mr Dunning, as more stringent lending criteria would need to be met.

“The high value nature of parts of London and the South East mean landlords will find themselves having to put down deposits of upwards of 40 per cent,” he added.

“While lenders need to ensure repayments are affordable to the borrower, they must ensure they strike a balance between affordability and viability.”

According to Countrywide, the average rent in Central London reached £2,518 in the third quarter, while Greater London saw the larger quarter-on-quarter rental increase, up 9.8 per cent to £1,225.

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