Now buy-to-let borrowers will get grilling, too

BANKS are cutting the amount landlords can borrow and demanding they pass stiff tests in a crackdown on the buy-to-let boom.

High street lenders are i ntroducing t he t ough checks as fears grow that thousands of investors are cashing in on cheap mortgages.

The new rules will reduce the amount landlords can borrow by t housands of pounds, forcing many to put up much bigger deposits.

In addition, those applying for a buy-to-let mortgage will face the same kind of strict interviews and financial checks as those buying a home to live in. As buy-to-let loans are not regulated by the City watchdog, landlords previously did not have to pass these tests.

Landlords are already facing a squeeze on their borrowing, thanks to a tax raid in the Budget last month.

And with an increase in interest rates predicted next year, many potential buy- to- l et investors could soon be priced out of the market.

Andrew Montlake, director of mortgage broker Coreco, said: ‘Banks are all too aware that the powers that be are watching the buy- to- let industry extremely carefully. Landlords should brace themselves for banks becoming far stricter in the coming months.

‘Banks and building societies will likely put in place extra checks to make sure they are only handing out l oans to i nvestors who understand what they are doing.’

There are two million UK landlords, of whom 1.6million have a mortgage. Buy-to-let mortgages make up one in five of all new home loans.

The boom is thought to have been driven by older savers who have suffered paltry returns since the base rate fell to a record low of 0.5 per cent.

Landlords enjoy generous tax breaks which allow them to write off the interest on their mortgages against t heir profits. Wealthier investors can claim up to 45 per cent tax relief on buy-to-let loans.

However, the Bank of England says buy-to-let investors are most vulnerable to the rate rise expected next year.

Last month, the Chancellor announced that from next April, landlords’ tax relief will be limited to 20 per cent.

The surge in landlord loans has been blamed for property prices rocketing, leaving potential first-time buyers unable to get on the housing ladder.

There have been calls for buy-to-let mortgage regulation, but banks already seem to be taking matters into their own hands. NatWest and Accord, part of Yorkshire Building Society, have increased the interest rates they expect landlords to be able to meet from their rental income.

David Hollingworth, of broker London & Country, said: ‘Buy-to-let rates are astonishingly low. So part of the reason banks and building societies are toughening up their lending criteria may just be because they are getting in so much business.

‘However, banks will want to avoid the crisis they faced after the property crash of 2008 and may start to tighten their checks and curb borrowing.’

A Council of Mortgage Lenders spokesman said: ‘Lenders continuously review their requirements in the light of their assessment of the overall environment for credit risk.’