With effect from 30th September, a new set of rules is being introduced by the Prudential Regulation Authority (PRA) which govern the way lenders assess buy-to-let mortgage applications from landlords who own four or more mortgaged properties – portfolio landlords.
There has been some press speculation that this may make life more onerous for landlords who own multiple properties, or even prevent some of them from being able to access sufficient mortgage funding in the future.
I’m pleased to report that the reality may not be as onerous as many had feared and the key issue is how lenders will interpret the new rules.
Most portfolio landlords will find that it’s an administrative exercise that requires a bit more paperwork and form filling. So no need to panic!
Why are the changes being introduced? The PRA wants to ensure that when assessing portfolio landlord buy-to-let mortgage applications, lenders adopt a specialist underwriting approach.
The PRA therefore requires lenders to build a comprehensive picture of a landlord’s financial position when all of their business dealings are taken into consideration.
From a practical perspective, this means you will need to provide lenders with detailed information about your properties, business and income and expenditure.
To be honest, a number of lenders have been asking for this information anyway, so their processes and procedures won’t change very much.
Lenders have been slow to publish details of their requirements from landlords who own multiple properties (at the time of writing, only three buy-to- let lenders had done so), but the picture is now starting to become far clearer.
In summary, portfolio landlords will have to provide the following information:
- A schedule showing all the individual properties which make up their total portfolio and a summary of their experience as a landlord
- A statement of assets and liabilities, including future tax implications and all outstanding mortgage balances
- A cashflow forecast
- A business plan.
A key point to remember is that lenders have to assess your whole portfolio of properties and not just those against which you have mortgages or for which you are applying to raise mortgage finance, so be prepared to gather together information about your total business activities.
To make this task easier, a series of downloadable document templates will be available free of charge on the RLA mortgages website www.rlamortgages.co.uk
As you will see, these simply ask for information that you probably have to hand anyway, so hopefully it shouldn’t create too many problems.
In most other respects, lenders will take a very similar approach to assessing your mortgage application, that they take to assessing all other mortgage applications.
They will look at your income and expenditure including living costs, ongoing credit commitments and any other financial commitments.
Lenders will also validate your rental income, if it’s used as part of your personal income, by comparing it with typical rents in your area.
Future expected rentals will also be checked against existing rental agreements or via an independent valuer.
In summary, the downside of these changes is that they will result in more paperwork and form filling.
The good news, however, is that you will probably have most of the information you need easily to hand and the changes shouldn’t make it any more difficult for you to arrange finance in the future.
Another piece of good news is that one lender is using these changes as an opportunity to launch a new forward funding facility for its borrowers.
This means that they’ll analyse your property portfolio and financial circum- stances and then set an amount they are willing to lend up to in the future.
This will make subsequent loan applications a lot easier and quicker to facilitate.
If in doubt about any of these issues, the best course of action is to consult a specialist buy-to-let broker.