New research suggests that buy to let investors without large deposits could be ‘locked out’ of buying, in an astounding two thirds of UK towns and cities.

Property Partner analysis of 85 towns and cities across the country reveals that 59 of these would not be accessible to landlords if tighter lending criteria is applied, as it would require a deposit of at least 40%.

Most lenders currently require the rental income on a property to cover 125% of the mortgage payments, where some lenders have already started to increase this percentage ahead of these potential changes being considered.

Barclays and Nationwide have already raised their rental cover requirements to 145%.

The top 5 towns and cities where landlords would face the highest financial barriers to entry are:

(These calculations by Property Partner are based on the rental cover being set at this higher rate.)

Worcester
Average house price: £188,694
Deposit needed to cover 145% Interest Coverage Ratio (ICR): 61%
Minimum value of deposit required: £115,103

Cambridge
Average house price: £450,301
Deposit needed to cover 145% Interest Coverage Ratio (ICR): 60%
Minimum value of deposit required: £270,181

Chichester
Average house price: £346,511
Deposit needed to cover 145% Interest Coverage Ratio (ICR): 59%
Minimum value of deposit required: £204,441

Bedford
Average house price: £256,074
Deposit needed to cover 145% Interest Coverage Ratio (ICR): 58%
Minimum value of deposit required: £148,523

Lichfield
Average house price: £214,279
Deposit needed to cover 145% Interest Coverage Ratio (ICR): 58%
Minimum value of deposit required: £124,282

How the calculations were reached:

Take, for example, Worcester in the West Midlands, where the average property price is £188,694, according to the Government’s UK House Price Index.

If a landlord wants to purchase a property in the city, then they would pay £337 a month for a 5.5% buy-to-let mortgage.

However, if lenders apply a stricter rental cover requirement of 145%, the income needed to cover the mortgage would then be £489.

The average rent in Worcester is £492 per month, resulting in the landlord having only £3 left after paying their mortgage.

It means for a landlord to realistically secure a buy-to-let mortgage, they would have to put down a hefty 61% deposit (the loan-to-value mortgage would be 39%) or £115,103.

This is based on tighter lending criteria being proposed by the Bank of England’s Prudential Regulation Authority.

It wants lenders to introduce strict new measures to ensure landlords do not overstretch themselves and can afford their property investments in the future, even if rates start to rise. These would include ‘stress tests’, which would examine if a borrower could afford the loan if interest rates were raised; something that could affect how much they would pay each month on their mortgage payments.

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