Portfolio Landlords - Four or More Let Properties
In January 2017, the Bank of England’s Prudential Regulation Authority (PRA) introduced the first phase of its changes to buy-to-let mortgage lending.
The first phase applied to all buy to let investors and included stricter affordability tests, including a stress test on future increase in interest rates, for buy-to-let landlords. These stress tests are to establish a let property will still be self-financing on the rental income at these higher rates.
From 30th September 2017, all portfolio landlords who will be subjected to stricter mortgage application rules. A portfolio landlord is defined as those with four or more mortgaged buy-to-let properties.
The PRA requires changes to the way in which buy-to-let mortgage applications are underwritten for portfolio landlords, as the PRA has found that mortgage payment arrears increase as the portfolio size grows.
So, from 30th September 2017, any borrower who falls into the portfolio landlord category will be required to pass far more detailed affordability checks.
The PRA has not prescribed a definitive requirement, but has outlined that lenders should take into consideration a landlord’s experience and track record of their full portfolio, rental income and outstanding mortgages. Also, taking into account all assets and liabilities.
Lenders should also take account of the merits of any new lending in accordance with the landlord’s business plan, along with historical and future expected cash flow.
The PRA is not concerned with recent tax changes.
How will you be affected?
If you’re a portfolio landlord, from 30th September 2017, lenders will need to ensure that you are not over-exposed and, as such, will stress your background portfolio – they will take your entire buy-to-let property portfolio into account when making a lending decision.
Although not all lenders have outlined how they will apply the guidelines, you can expect them to assess the following:
Your property investment experience
• The total amount of mortgage borrowing you have across your whole portfolio
• Your assets and liabilities, including tax liability
• The merits of any new lending in context of your existing buy-to-let portfolio, along with your business plan
• Historical and future expected cash flow from your portfolio
• Your income, both from property and elsewhere
You should be prepared to be asked for your up-to-date property portfolio spreadsheet, a business plan, cash flow forecasts, your last three months’ bank statements, submitted tax returns, and possibly income and expenditure statements for your portfolio.
How you can prepare?
If you do plan to take out a mortgage for another buy-to-let property (if you already have four or more mortgaged buy-to-let properties), you should be ready for the additional tests.
To be in the best position to borrow further, you should get your paperwork in order and ready for the application process.
It’s important to keep your property portfolio spreadsheet up to date. For our existing clients, we have already created spreadsheets of your property portfolios to help you.
Proving income is also an area where our self employed client’s need to be ready so that HMRC figures are available from within the last twelve months.
As usual the official rules on this are open to interpretation. We are finding some lenders are looking for more information than others. Some want to know about all your business activities and other trading companies. Further, some are asking for all your other liabilities, assets and investments aside from your buy to let portfolio.
By necessity, we may well have to give you choices of lenders based on the information they require rather than the seeking those with the best mortgage rates terms. If you have any questions, please contact us.
Please be assured we will do all we can to make this process as easy as possible for you.
The first phase applied to all buy to let investors and included stricter affordability tests, including a stress test on future increase in interest rates, for buy-to-let landlords. These stress tests are to establish a let property will still be self-financing on the rental income at these higher rates.
From 30th September 2017, all portfolio landlords who will be subjected to stricter mortgage application rules. A portfolio landlord is defined as those with four or more mortgaged buy-to-let properties.
The PRA requires changes to the way in which buy-to-let mortgage applications are underwritten for portfolio landlords, as the PRA has found that mortgage payment arrears increase as the portfolio size grows.
So, from 30th September 2017, any borrower who falls into the portfolio landlord category will be required to pass far more detailed affordability checks.
The PRA has not prescribed a definitive requirement, but has outlined that lenders should take into consideration a landlord’s experience and track record of their full portfolio, rental income and outstanding mortgages. Also, taking into account all assets and liabilities.
Lenders should also take account of the merits of any new lending in accordance with the landlord’s business plan, along with historical and future expected cash flow.
The PRA is not concerned with recent tax changes.
How will you be affected?
If you’re a portfolio landlord, from 30th September 2017, lenders will need to ensure that you are not over-exposed and, as such, will stress your background portfolio – they will take your entire buy-to-let property portfolio into account when making a lending decision.
Although not all lenders have outlined how they will apply the guidelines, you can expect them to assess the following:
Your property investment experience
• The total amount of mortgage borrowing you have across your whole portfolio
• Your assets and liabilities, including tax liability
• The merits of any new lending in context of your existing buy-to-let portfolio, along with your business plan
• Historical and future expected cash flow from your portfolio
• Your income, both from property and elsewhere
You should be prepared to be asked for your up-to-date property portfolio spreadsheet, a business plan, cash flow forecasts, your last three months’ bank statements, submitted tax returns, and possibly income and expenditure statements for your portfolio.
How you can prepare?
If you do plan to take out a mortgage for another buy-to-let property (if you already have four or more mortgaged buy-to-let properties), you should be ready for the additional tests.
To be in the best position to borrow further, you should get your paperwork in order and ready for the application process.
It’s important to keep your property portfolio spreadsheet up to date. For our existing clients, we have already created spreadsheets of your property portfolios to help you.
Proving income is also an area where our self employed client’s need to be ready so that HMRC figures are available from within the last twelve months.
As usual the official rules on this are open to interpretation. We are finding some lenders are looking for more information than others. Some want to know about all your business activities and other trading companies. Further, some are asking for all your other liabilities, assets and investments aside from your buy to let portfolio.
By necessity, we may well have to give you choices of lenders based on the information they require rather than the seeking those with the best mortgage rates terms. If you have any questions, please contact us.
Please be assured we will do all we can to make this process as easy as possible for you.