Will the abolition of Section 21 make it harder to get mortgages for buy-to-let properties, and are lenders introducing new criteria or due diligence checks as a result?
Quick Answer
The anticipated abolition of Section 21 is not expected to significantly tighten BTL mortgage availability directly. Lenders maintain standard stress tests (125% rental cover at 5.5% notional rate) and affordability checks.
## Impact of Section 21 Abolition on Buy-to-Let Mortgage Availability
The abolition of Section 21, expected in 2025, is not anticipated to directly make buy-to-let mortgages harder to obtain from a core lending criteria perspective.
Most BTL lenders primarily assess mortgage affordability based on the property's rental income (via the Interest Coverage Ratio, typically 125% at a notional rate of 5.5%) and the borrower's personal financial health. The Bank of England base rate, currently 4.75%, directly influences BTL mortgage rates, which typically range from 5.0-6.5% for 2-year fixed products. As long as these core metrics are met, the mechanism for ending a tenancy is generally not a primary determinant for initial mortgage approval. Changes to the legal framework for evictions, while significant for landlords, are perceived as a shift in risk management rather than a fundamental change in a property's income-generating potential for lenders.
### Are lenders introducing new criteria or due diligence checks?
Lenders are not currently introducing significantly new mortgage criteria or direct due diligence checks specifically due to the upcoming Section 21 abolition, as their focus remains on financial metrics. However, the shift towards a 'for cause' eviction framework may prompt heightened scrutiny on a landlord's understanding of tenant management and compliance.
Some lenders might, implicitly, place greater emphasis on the quality of tenancy agreements and a landlord's track record of compliance with regulations, although this is more about reinforcing existing good practice than introducing novel checks. For example, a lender might expect a landlord to demonstrate awareness of Awaab's Law and its implications for damp and mould response, which extends to private sector landlords, to ensure the property remains suitable for tenants and avoids potential legal disputes.
An increase in demand for mortgage products that allow for specific clauses relevant to tenancy changes could emerge, but this would be a product refinement rather than a lending criteria overhaul. The focus for lenders will remain on the property's ability to generate sufficient rent to cover mortgage payments, and the borrower's capacity to manage their portfolio responsibly.
### What will lenders prioritise in the absence of Section 21?
Lenders will continue to prioritise rental income stability and the borrower's financial capacity. The standard BTL stress test, requiring 125% rental coverage at a notional rate of 5.5%, will remain paramount. Properties that consistently demonstrate strong rental yields, for example, a property generating £1,200 per month on a £200,000 mortgage at 5.5% interest will pass the 125% ICR. They will also look at a landlord's experience and their ability to manage potential risks, such as void periods or tenant issues, which could indirectly affect rental income.
### How might this affect specific buy-to-let strategies?
For standard single-let buy-to-let properties, the impact on obtaining a mortgage is likely to be minimal, beyond emphasizing tenant management best practices. However, for strategies that rely on flexible tenancies or rapid tenant turnover, lenders may become more cautious if they perceive an increased risk of protracted eviction processes and subsequent loss of rental income.
For example, while HMO properties are under mandatory licensing if they house 5+ occupants from 2+ households, and offer higher yields, the 'for cause' eviction framework could introduce complexity. Lenders might assess a landlord's experience in managing multi-tenant properties more rigorously, though primary checks will remain on the property meeting the stress test criterion. Properties with robust tenant referencing and management in place are likely to remain attractive to lenders.
## Potential Lender Adaptations to Tenancy Reforms
Lenders might adapt by requiring clearer evidence of proactive property management and compliance. This could reflect in slightly longer processing times for some applicants as lenders ensure all boxes are ticked regarding property standards and landlord obligations. However, the fundamental lending decision will still hinge on the borrower's financial profile and the property's income-generating capacity.
Property investors should anticipate that due diligence will increasingly encompass an assessment of their operational readiness as a landlord, including understanding of new regulations like Awaab's Law. This helps mitigate risks of tenant disputes that could result in prolonged void periods or legal costs.
Steven's Take
The abolition of Section 21 doesn't change the maths for BTL mortgages. Lenders look at money – specifically, can the rent cover the mortgage, and can you, the landlord, afford it? The key metrics like the 125% ICR at 5.5% notional rate will continue to dictate BTL mortgage approvals. While operational risk for landlords shifts, necessitating better tenant management, this isn't a direct lending criteria change. Focus on robust tenant onboarding and property compliance, not perceived mortgage difficulties. The market values stability; if your rent covers debt, you're fine.
What You Can Do Next
Check Lenders' Specific Criteria: Review the buy-to-let mortgage criteria of major lenders (e.g., NatWest, Paragon) on their official websites or via a specialist broker like 'The Mortgage Works' to understand their current stress tests and affordability requirements.
Review Your Tenancy Agreements: Ensure your existing and future assured shorthold tenancy agreements (ASTs) are compliant with current and anticipated legislation (e.g., Renters' Rights Bill changes) to minimise eviction risks, using resources like gov.uk tenancy forms.
Understand Operational Compliance: Familiarise yourself with landlord obligations, particularly those around property standards and tenant welfare (e.g., Awaab's Law via gov.uk guidance), as this mitigates risks that lenders may implicitly consider.
Consult a Specialist Mortgage Broker: Engage a broker specialising in buy-to-let finance to discuss how upcoming legislative changes might affect your specific investment strategy and to identify suitable mortgage products tailored to new landlord considerations.
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