The mortgage director of Romans, one of the country’s largest agency groups, says the new Bank of England rules being introduced for portfolio buy to let investors may effectively end up barring them from borrowing from banks.
This weekend sees the start of new rules being introduced by the Bank’s Prudential Regulation Authority; they mean that lenders will now take into account landlords’ total income versus borrowing across all of their properties.
This will apply to all borrowers who have four or more existing buy to let investments, and to those with three BTLs who are borrowing to purchase a fourth.
This change in criteria is designed to ensure that borrowing on any new properties does not have a negative impact on the landlord’s ability to repay loans on other properties within their portfolio.
Under the current system, lenders assess a landlord’s application based on the rental income and value of the property they are lending against. The new regulations will mean that not only is the property being lent against considered, but also the rental income, geographic spread, value and any loans across all properties in a landlord’s portfolio.
According to UK Finance this will affect only 11 per cent of the 1.9m landlords, and Romans advises that only those with poor cash flow or a high number of properties in one geographic location need to be concerned.
“This stricter criteria means a lot more work for lenders, and may result in them refusing to offer mortgage services to landlords with large portfolios as they are unable to cover the additional workload” warns Greg May, director of Romans Mortgage Services.
“With all of the additional considerations for lenders, we recommend allowing a minimum of three months for the application to be processed. This change is likely to mean that landlords will have a more limited choice of lenders and products when they come to purchase a new property or remortgage their existing ones” he adds.
May cautions that existing portfolio landlords should check that their current lender will be continuing to offer their services to portfolio investors in future and, if required, whether you can refinance with them in the future.
“This change also highlights the importance of keeping up-to-date, detailed records for all of your properties – this way, when the time comes to remortgage, you will have all the information needed for your application to hand” he concludes.