From the 30th of September, lenders must implement changes to the way in which buy to let mortgage applications are underwritten for portfolio landlords. Paul Martins, consultant mortgage broker explains who will be affected and what can be done to prepare.
First, I think it is worth me highlighting the definition of a portfolio landlord…
According to the Prudential Regulation Authority portfolio landlords are defined as:
“borrowers with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate.”
From 30th September 2017, the PRA requires that all lenders carry out specialist affordability checks on any borrower who falls into this category.
So, what does this mean for you?
Lenders will need to make sure you are not over-exposed and as such will look to stress background portfolios, i.e. they will take your entire buy to let property portfolio into account when making a lending decision. As yet, we don’t know exactly how each lender will apply the guidelines but you can pretty much guarantee they will be looking at:
- Your property investment experience
- The total amount of your mortgage borrowing across all properties
- Your assets and liabilities, including tax liability
- The merits of any new lending in context of your existing buy to let portfolio together with your business plan
- Historical and future expected cash flow from your portfolio
- Your income both from property and elsewhere
So, be prepared to be asked for your up-to-date property portfolio spreadsheet, a business plan, cash flow forecasts, your last three months’ bank statements, SA302s, submitted tax returns, ASTs and possibly income and expenditure statements for your portfolio.
Some lenders have also already started asking for more paperwork than previously.
Most are still in the process of working out how they are going to amend their policies and processes, but of course we will let you know when we have more details.
In my meetings with lenders over the past few weeks, there have been some suggestions of random valuation checks being introduced come September.
What can you do to prepare?
Consider bringing forward any future property finance plans you might have – it’s likely to be more straightforward now than come October.
To be in the best position going forward I would ask that you get your paperwork in order and keep your property portfolio spreadsheet up-to-date.
If you are looking to review your portfolio, I would recommend looking into it sooner rather than later – we can help with this!
I think it is safe to say from September there will be a slowdown in turnaround times as lenders get to grips with the new procedures. I don’t believe there is any reason to panic but if you would like to talk through how the changes might affect your circumstances, please don’t hesitate to get in touch.
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