This month, the Prudential Regulation Authority (PRA), which is part of the Bank of England (BoE), will start to enforce tougher lending standards on buy-to-let portfolio landlords – those with four or more mortgaged buy-to-let properties.
We have created a guide for landlords on the new rules: https://landlordnews.co.uk/landlords-guide-pra-portfolio-underwriting-changes/
Although the new buy-to-let portfolio rule changes are due to be introduced from 30th September 2017, some lenders will apply the new rules from today, 1st September.
We’ve spoken to London estate agent Portico about the upcoming buy-to-let portfolio rule changes.
The agent’s Regional Director, Mark Lawrinson, comments: “Under the new rules, if you want to make an application for a buy-to-let-mortgage on a new rental property, the lender will have to look at your entire property portfolio when they decide what mortgage deal they can offer on a single property.
“For example, if you have six properties and four are generating enough rental income to cover mortgage payments and then some, but the other two are not, your new mortgage application may not be approved by some lenders.”
He continues: “As of 30th September, lenders will also require a full breakdown of rental properties, a business plan, and cash flow projection to support a new application.
“As a result of the new buy-to-let lending changes, we may see a surge of rental stock come back on the market for sale, as landlords look to offload their weakest performing properties in order to get further lending on more potentially profitable properties.
“The new rules could also have a knock-on effect on rental prices, as landlords look to cover any shortfalls or carry out works to a property to both increase the capital value and the rent, in turn improving the yield and the return.”
Seasoned landlord and the London representative for the National Landlords Association (NLA), Richard Blanco, had this to say: “Landlords who want to remortgage or capital raise before being assessed through the new criteria will need to get their skates on. They may be too late for some lenders, who are applying the new rules from Friday 1st September.
“Many lenders will unfairly assess landlords’ existing mortgages through a 145% x 5.5% prism, even though they originally got their mortgages on looser criteria years ago. This could create mortgage prisoners: borrowers who are unable to switch lenders. This is a reminder that if you do remortgage to another lender, always choose one that has a good track record in switching customers to competitive follow-on rates once the initial product has expired.”
He adds: “Landlords are gradually waking up to the fact that they are having to borrow at a much lower loan-to-value [LTV], so they may not get further advances because rental coverage has to be much higher. If their regular lender has decided not to do business with portfolio landlords, they may need to take their business elsewhere.”
Portico also asked mortgage experts Capricorn Financial who the new buy-to-let portfolio rule changes will affect: “A few lenders are likely to withdraw from this arena as a result of the new rules. Santander have already indicated they will not lend to portfolio landlords for purchases or additional borrowing, while others have improved their offering through brokers – NatWest, for example, have gone from a maximum of four properties to ten.”
The new lending changes come on top of tighter stress tests for buy-to-let landlords, which came into force in January this year.