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Saturday, July 12, 2014

Income caps on BTL mortgages

The latest news is that Government owned RBS is acting to put an income cap on new mortgages limiting loans to 4.99 times the applicants income from effect from Monday (14 July).

This policy is inline with attempts from the European Union to exert greater control over residential investment mortgages.  We have said in the past that income based control of lending does not help landlords or greater investment in the private rental sector.  In Property Hawk's view it is not a good measure on it's own of affordability of a mortgage.

Clearly, this move is politically led.  A bank 81% owned by the Government is being used as an instrument to calm a perceived overheating housing market.  Whilst the market might be white hot in the market surrounding the 'Westminster Bubble.' This is clearly not so in the rest of mainstream UK. It does however illustrate why business does not belong in the hands of the public sector and the politicians.  These arbitrary mortgage income limits on buy-to-let mortgages will only drive landlords into the arms of other lenders reducing the profitability of a bank that will clearly end up being sold in the coming years at less than it should be if allowed to operate on a purely commercial basis.  With buy-to-let mortgage repossession rates being below that of owner occupation and with many of the buy-to-let mortgages being secured based on the rental levels of the proposed investment, not on the landlords income.  The rational for this income link is not clear.  But there again, this is not a rational commercial move it's political, which for us simple landlord folk explains everything.

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