Forget worries about finance interest tax relief, the mortgage crunch is inflicting the real damage.
The true scale of the problem is revealed in the lending figures of Britain’s biggest building society and second largest landlord lender, the Nationwide.
Branded The Mortgage Business for buy to let, lending was down from £2.2 billion at the end of December 2015 to £900 million in the nine months to the end of 2016.
“We have seen the buy to let market cool, to some degree,” said Mark Rennison, the society’s finance director.
“It’s a smaller market today than it was a year ago, quite a bit smaller probably in London and the south east. I don’t think it’s a short-term effect.”
“The evidence is household incomes are coming under some sign of pressure.”
“We think that ultimately will feed into more caution from consumers, probably lower levels of consumer spending and that’s been a big driver of economic growth.”
The lender trade body, the Council of Mortgage Lenders points out that financial activity is switching away from purchases to remortgages for landlords and is likely to continue to do so.
Although lenders have been busy trimming rates, they are unattainable for many landlords.
Take a buy to let bought for £200,000 with an annual yield of 5%. Before the Bank of England changed affordability rules, the landlord had to show that the rent would cover 125% of the mortgage interest due at a rate of 5%.
That would allow a landlord to borrow £160,000 or 80% of the purchase price.
To remortgage to a cheaper rate, the same landlord needs to show the rent now covers 145% of mortgage interest due at a rate of 5.5%. That allows a remortgage of £125,390 at 73% loan-to-value.
Instead of choosing to remortgage to a cheaper rate, many landlords are trapped on higher rates unless they can afford to input a large wad of cash to pay down their debt.