The most immediate effect of regulatory changes in the buy-to-let sector will be a drop in loan sizes and origination volumes, with longer-term fixed-rate loans becoming increasingly common.
This is the view of Standard & Poor’s who has issued a paper on the impact of the changes made. This includes new rules introduced by the Prudential Regulatory Authority on stress tests and changes to lending to portfolio landlords.
In addition, the government’s new tax regime for buy-to-let lending will reduce net cash flow to landlord investors.
S&P notes that buy-to-let properties in London and the South East will become less economically attractive due to high prices and low yield. But higher-yield properties will become more attractive, as will those bought through limited companies.
Overall, S&P expects the loan-to-values of buy-to-let loans in securitisations to fall. However, as all lenders are forced to lend in a narrow LTV range, they are likely to develop other products that justify charging higher loan margins. Ultimately, this may alter the risk profile of buy-to-let lending.
Source; Joanne Atkin