From October 2017, lenders are required to apply a specialist underwriting approach to buy to let mortgage applications from portfolio landlords. In practice, this means that you will have to provide lenders with much more detailed information when applying for a mortgage, even if you want a simple remortgage.
But how do you know if you are a portfolio landlord?
The Prudential Regulation Authority (PRA) definition of a portfolio landlord is a borrower with four or more distinct mortgaged buy to let properties, either together or separately, in aggregate.
If this definition applies to you, and you know you will require buy to let finance in future, we recommend that you prepare now. In addition to the standard supplementary documentation, here is a checklist of what else you may have to provide:
ü Latest 2-3 years’ tax returns
You might be asked for the last 2-3 years’ worth of tax returns, so make sure you have copies available. At the very least you will have to provide SA302s which are statements of your income. These are issued by HMRC and can be downloaded from your HMRC account. If you do not have an online account, you can request them by post but do note that they can take a few weeks to arrive.
ü Up to 6 months’ bank statements
These are required so that the lenders can see how you spend and manage your money on a monthly basis. If you use a number of different bank accounts, e.g. to keep separate rental income from any other income you may earn, remember, you will need to provide the statements from all the accounts.
ü Details of your entire property portfolio
Make sure your spreadsheet of properties is up to date including addresses, rental income, and details of any outstanding mortgages. Lenders need to know the size of your overall borrowing and commitments. They will also use this information to assess your experience as a landlord.
ü Evidence of other income
As well as being a landlord, do you have a ‘day job’ or income from pensions or other investments? Lenders will take other sources of income into consideration, so make sure you have the relevant paperwork to support this income.
ü Business plan
This doesn’t have to be a lengthy document, rather, lenders will want to understand your investment strategy, now and in the future. For example what type of properties do you buy? Where do you buy them? How do you buy them and on what terms, i.e. interest only or capital repayment? What is your exit strategy?
ü Cash flow forecasts
Lenders will need to know how you manage your money and property portfolio. For example, do you have sufficient cash reserves to cover void periods, general property maintenance and emergency repairs? How much income do you receive on a monthly basis? And how much goes out? Do you have a contingency fund?
Whilst we are waiting for most lenders to publish their specific requirements, this checklist is somewhat of a moveable feast rather than a hard and fast rule. However, 1st October is not far away, so you need to be prepared. We’ve also noticed that some lenders are already beginning to ask for additional information…
We are working on some tools to make collecting and maintaining this information easier for you. Details to be announced over the coming months. In the meantime, why not get in touch? We can assess the information you currently have and let you know what else you need to do to be prepared. On our website we have a downloadable portfolio review form or you can send us your own spreadsheet. Reviews are carried out in the strictest of confidence and are free of charge.
We aim to work with you to ensure that you are prepared for the changes and make the transition as painless as possible. And we’ll keep you up to date of all developments and their implications, so if you haven’t already, do sign up to our weekly investor update email.
If you need any assistance call the main broker hotline on 0345 345 6788.
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How Aldermore will underwrite portfolio landlords
As of 1st October 2017 lenders will need to implement a more thorough underwriting process when considering mortgage applications from portfolio landlords, i.e. where the borrower has, or will have more than four mortgaged residential buy to let properties.
The Mortgage Works & Paragon break silence on lending to portfolio landlords
Chris Longhurst describes how these lenders will meet new PRA requirements
12th July 2017