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It will come as no surprise to any landlord who needs lending that the terms and conditions banks impose are onerous – but the situation is getting worse.
Faced with the highest interest rates in 15 years, landlords are at the sharp end of the stick when it comes to the Bank of England hiking rates, with many landlords now trapped on their lender’s standard variable rate (SVR) costing as much as 9.5pc.
But the small print behind these eye-watering rates is even more shocking, with some lenders introducing criteria which make it nigh on impossible for landlords to secure new lending or refinancing deals.
The whole issue hinges on the “interest coverage ratio” (ICR), which is used by banks to calculate how easily a mortgage debt can be repaid.
In recent years this was 125pc for lower-rate taxpayers, and 145pc for higher-rate taxpayers, but these rates have now soared to 130pc and 165pc respectively.
This means if landlords want to remortgage a property, they are now forced to increase the rent to tenants in order to try and meet the bank’s criteria, or else they will be forced to sell.
But it gets worse. With the full introduction of Section 24 and increased mortgage rates, landlords who own property in their personal names – often as part of their pension planning – are unable to deduct the full expense of the mortgage interest from their tax bill.
The freeze on tax thresholds since 2021/22, which is predicted to last until 2028, has resulted in many basic-rate tax paying landlords being dragged into higher-rate tax bands. This so-called “fiscal drag” means landlords have to pay even more tax, just to try and keep a roof over their tenant’s heads.
The sums do not add up.
Landlords are now – in addition to a cost of living crisis – facing a “cost-of-doing-business” crisis.
The banks and their small print are propelling the buy-to-let market, and would-be renters, to a cliff edge.
There are barely any properties available to rent, and those that do become available face deluges of hopefuls vying to find a home. Even those landlords who want to remain in the market, if they have borrowing, are struggling to make ends meet.
One mortgage broker told me: “ICRs are a joke at the moment. We can hardly get anything to fit.”
But landlords don’t just have to battle increased mortgage rates, unfair taxation and tight lenders’ rental coverage criteria – there’s yet more bank small print lurking when it comes to the energy performance, or “EPC grade” of the property.
Michael Gove may be flip flopping around on the whole EPC debacle, and if or when the Government is going to introduce a minimum grade C for rental properties, but the banks are not.
Despite widespread acknowledgement that EPCs are not fit for purpose and the Government proposal to overhaul the entire system, banks are using these ineffective energy certificates to penalise landlords further.
Many lenders are now bringing in this energy performance criteria for their loans and actively charging more for mortgage deals, by an average of 0.25pc, if the property falls below the hallowed “C” grade.
This is an untenable situation. There is no joined-up thinking. The banks are rewriting the rules of buy-to-let according to strict criteria, which makes it barely possible to keep properties already owned, in addition to proposed energy regulations that haven’t even been made law.
If you’re looking for a cause for this housing crisis and surging rents, I’d suggest you take a look at the banks’ small print.
The Secret Landlord is a monthly column by an anonymous buy-to-let investor. Email: secretlandlord@telegraph.co.uk
Britain’s banks are rewriting the rules of buy-to-let
Check the small print – lenders are creating a ‘cost of doing business’ crisis for landlords