A raft of new buy-to-let mortgage rules are coming into effect at the end of September 2017. Here’s everything landlords need to know ahead of the latest buy-to-let crackdown:
What are the new buy-to-let mortgage rules?
The Bank of England, specifically the Prudential Regulation Authority, will start to enforce tougher standards for portfolio landlords from the end of next month.
The PRA’s definition of a portfolio landlord is noteworthy – borrowers, who own four or more distinctly buy-to-let mortgaged properties. (This will not include unencumbered properties or properties on consent to let.) However, the rules will apply to those who own three rental properties and want to take a mortgage out on a fourth.
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.
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.
Who will the new rules affect?
Mortgage & Insurance Adviser at Capricorn Financial, Andrew Thriepland, explains, “The new affordability approaches and underwriting practices are to take account for the “complexities” of being a portfolio landlord. In practice, this should not affect borrowers who plan on maintaining their existing portfolio, however, if you plan to make any changes, such as additional borrowing or purchasing a new property, then you will be affected.
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 10.
So what should landlords do?
Capricorn Financial are advising landlords to get their mortgages sorted now before the new rules come into place: “If you plan on making any acquisitions or adjusting your level of borrowing, then either try and arrange new deals now, or ensure you’re capable of doing so after 30th September.”
It’s also sensible to try and cut costs wherever possible. We recommend cutting your interest costs by re-mortgaging and getting an up to date rental valuation on your property. Your lender will therefore need to recalculate your LTV, and a lower LTV generally ensures a better interest rate and a larger selection of lenders.
For more information, or to get an up-to-date sales or rental valuation, give us a call on 0207 099 4000.