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Portfolio landlords with four or more mortgaged buy-to-let properties will have to meet new requirements
If you are a landlord building a buy-to-let property empire, watch out. Tougher lending rules came into effect from the 1st October 2017, which could make arranging the finances a little more arduous.
After the introduction of stricter affordability tests for all buy-to-let mortgages at the beginning of the year, the latest set of requirements from the Prudential Regulation Authority (Financial Conduct Authority) are targeting loans to portfolio landlords with four or more mortgaged buy-to-let properties.
Under these rules, mortgage companies will need to undertake a full analysis of the landlord’s entire property portfolio as part of the lending process.
Although this analysis can vary between lenders, it is likely to include factors such as the cash flow across the portfolio, the borrower’s experience in the buy-to-let market, any assets, liabilities or alternative sources of income, and even the location of properties.
So you might be looking to buy another property that looks great on its own but, if you already have a portfolio of 10 properties where the rent is only just covering the costs, you could find your application is rejected.
As well as putting a stop to some of the higher-risk buy-to-let lending, the additional work required to assess suitability could mean a longer application process. Some lenders already have good systems in place that enable them to assess applications quickly and efficiently, however, for others, the increase in the amount of information required could mean a longer wait for a mortgage decision.
There could potentially be increases in the cost of borrowing to cover the extra administrative burden, or maybe higher product fees.
There is also much uncertainty about whether some lenders will continue to operate in the portfolio landlord market. Although some, including Paragon Mortgages, have already stated they will carry on lending regardless of the number of properties, others are more reluctant.
For instance, Santander has announced it will only allow portfolio landlords to remortgage if there’s no capital raising.
It is essential you make sure you've got all your paperwork in order. We are helping client’s with spreadsheets of the their portfolios and ensuring their tax and income information is up to date.
Some lenders may also want to see your business plan outlining how you intend to run your property portfolio.
It seems a lot of work, but we are confident we will continue to be able to source the finance you need.