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Buy-to-let borrowers ‘could need 40% deposit’

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Buy-to-let borrowers could require a 40% deposit to secure a property in London and the South East if new rules hit the market, research from Countrywide has found.

Proposals from the Bank of England to strengthen its market powers would mean around a third of landlords in the capital and surrounding areas would need to stump up a 40% deposit to obtain finance, the firm said.

This prediction is based on the introduction of a stress test similar to that used on owner occupiers under the Mortgage Market Review, typically of around 7%. At present a buy-to-let lender generally tests a loan at 5%.

Nick Dunning, group commercial director at Countrywide, said most landlords would pass any new stress test as property in other areas of the country has 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.”

Dunning said the full impact of any new rules must be considered.

“If the proposals are implemented, would-be landlords will have to put down increasingly larger deposits to meet more stringent lending criteria. The high value nature of parts of London and the South East mean many landlords will find themselves having to put down deposits of upwards of 40%.

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

The firm’s research showed the average rent in Central London reached £2,518 in the third quarter. Greater London saw the biggest quarter-on-quarter increase in rents, growing 9.8% to reach £1,225.

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