Ratings agency gives gloomy outlook on UK buy to let ...

An international ratings agency has given its verdict on investors’ prospects for the UK buy to let market - and it doesn’t make for pretty reading.

KBRA - the full name of which is the Kroll Bond Rating Agency - is a global ratings service offering advice to investors.

Its most recent report explores the regulatory and financial difficulties facing investors in the UK buy to let sector in a climate of economic difficulties from rising interest rates, slowing house price growth, and an increased cost of living affecting tenants.

It says: “This has created a challenging landscape for landlords, especially those looking to remortgage in this new environment. In addition, regulators have altered policies to try and ensure higher quality BTL mortgage origination, including energy-efficiency improvements for older properties.”

The key takeaways from its report are:

The BTL sector’s growth will slow and may even shrink as it encounters a higher cost of financing, declining tax benefits, changing regulations, and the poorer tenants;
The remortgage risk factor is elevated for loans nearing the end of their fixed rate period;
KBRA reviewed nearly 20,000 BTL loans and found that 20.3 per cent may have a higher remortgage risk factor due to relatively low debt service coverage ratios or high LTV levels;
Within the subset of soon-to-end fixed rate BTLs, the exposure in London is “fairly high”;
However, remortgage risk factors are mitigated by a landlord’s ability to raise rents, the diversification benefits of portfolio landlords, and the relatively low borrower leverage in the BTL sector;
There are further looming risks that cloud the BTL sector, including changes to tenancy rights, taxation, and energy-efficiency regulations.

Click here to view the report.