Gavin Elley, consultant mortgage broker looks at why landlords with four or more rental properties are being singled out in the PRAs consultancy paper on buy to let underwriting standards and what this means for you.
Between us here at Mortgages for Business we’ve written numerous blogs and case studies on what the tougher underwriting standards will mean in terms of how much you can borrow going forward.
However, changes to interest cover ratios and notional rates aren’t the only things landlords need to be aware of.
The PRA is insisting that by September 2017 all buy to let lenders will need to have introduced tougher underwriting standards, with more probing background checks on potential borrowers – particularly ‘portfolio landlords’.
“A landlord will be considered to be a Portfolio landlord where they have four or more mortgaged buy to let properties across all lenders in aggregate” according to the Consultation Paper CP11/16.
What this means in reality will depend on the individual lender, however stricter affordability checks will be carried out across the board.
Some building societies have always taken a more stringent approach to lending and limit the number of mortgaged properties in a portfolio from anything from three to ten. Their focus has always been on what could be termed the ‘amateur’ landlord, as they prefer their customers to have an income outside of their rental income.
Lenders that cater for and understand the professional landlord take more of a pragmatic approach to those with a number of properties. They understand that the greater number of properties, provided that they are well managed, reduces the overall default risk as the borrower can cope with void periods much better and make it their business to reduce the period of re-letting.
Going forward all lenders will be asked to stress background portfolios against new rules to ensure that landlords are not over committed, which means landlords need to be prepared to be asked for bank statements, tax returns, SA302s, ASTs, rental accounts and potentially income and expenditure statements.
Our advice to you would be to make sure you are in the best position going forward by ensuring your accounts and documentation are all up-to-date and that you have taken on board any advice from your accountant regarding your existing portfolio and future purchases.
This may all sound a bit scary but we are here to help.
For any more information or to discuss your portfolio do give us a call today on 0345 3456788.
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How the new buy to let underwriting standards will affect lenders and borrowers
Steve gives his views on what the implications of tougher interest cover ratios and increased background checks will mean for landlords and buy to let lenders.
26th October 2016