Further Tightening on Landlords Borrowing

Posted on August 22nd, 2017

From 30^th September 2017 new lending rules* come into play which mean lenders will be required to adopt a specialist underwriting approach for Portfolio Landlords.  A Portfolio Landlord will be any landlord who owns four or more mortgaged Buy-To-Let (BTL) properties.

One of the reasons behind the new process is that the PRA has found that the rate of arrears increases as a landlord’s BTL property portfolio increases.

The PRA does not prescribe exact requirements but provides guidance, which includes:

• The lender’s knowledge of the borrower
• The borrower’s experience in the BTL market, their full portfolio of properties and outstanding mortgages
• The borrower’s alternative sources of income, assets and liabilities, including any future tax liability on rental income
• The merits of any new lending, taking into account their existing BTL portfolio, together with any business plan, and
• Historical and future expected cash flows associated with all the borrower’s properties

 

Impact on Landlords

Lenders will likely request income and mortgage details on all properties in a BTL portfolio every time they refinance one, or purchase a new property.  This contrasts with most lenders current policy of assessing a buy-to-let mortgage application based on the rental income and value of just the property they are lending against.  This will cause problems for landlords when refinancing a property in a portfolio which is performing well but the application is affected by another property that is underperforming.

These changes will likely cause a large increase in work for lenders with a longer and more complex underwriting process.  This may lead to some lenders pulling out of this area of the market meaning less competition, or increasing application fees and/or interest rates.

Some lenders will bring these changes in ahead of the deadline but will honour applications accepted prior to their chosen inception date.  Those who will be classed as Portfolio Landlords and are able to refinance before the changes are implemented may benefit from reviewing their mortgages now.

Bridging loans, holiday lets, property commercial lending, and corporate lending are exempt from the changes.

*Prudential Regulation Authority’s (PRA) Supervisory Statement 13/16 Underwriting Standards for buy-to-let mortgage contracts.

Excaliber Associates are offering half price broker fees for SWLA members until the end of September.  Please contact Kirsty or Nick on 01752 340183.