The end of September has come and gone and now, landlords with four or more mortgaged buy to let properties will find that the mortgage application process has changed, as Jeni explains.
The good news. October does not mark the end of portfolio landlords being able to obtain a mortgage. If you could have raised a mortgage in September, there is every chance you will be able to do the same going forwards, and on the same sort of rates. However, what will be different is the paperwork you will need to provide and how it is assessed by the lenders.
First up, the definition of a ‘portfolio landlord’ has been, on occasion, misinterpreted. The Prudential Regulation Authority deems anyone with four or more mortgaged buy to lets as a portfolio landlord. This includes those who own property in a limited company and is the aggregate number of properties held by the applicants.
Our eyes are now on how the whole market is working within the new parameters. Some lenders left it until the last couple of days in September before they made their stance public. This was not particularly helpful to brokers and borrowers but hey, what can you do? And so, I sit here now, looking at a list of the buy to let lenders and their requirements from portfolio landlords when applying for buy to let finance and I think it’s probably best to chunk it down into two parts:
1. What you will need to provide?
In terms of documents, expect on every occasion to provide a spreadsheet setting out information on your entire portfolio. I suggest you use our spreadsheet template as it covers pretty much every lenders’ requirements, thus saving you the job of having to keep on filling these out in slightly different ways.
Some lenders will also ask for a business plan. For the most part, these are just a form which will need to be completed, either in the format of a tick box or with a few
explanatory words from you the borrower. The key here, is for the lenders to be able to understand your plans for the year and how this will impact you financially.
Lastly, and the least asked for document is a cash flow forecast. Here the lender will want to see what cash you have coming in from your properties and what cash you expect to outlay on a month by month basis over the next 12 months. Needless to say, if in your business plan, for example, you mention refurbishing one property, then the expectation would be for this to be reflected in the cash flow forecast (i.e. everything needs to tie in). We will be writing more about filling these out in a separate blog, so do take a look on our website or sign up to our weekly email for investors
2. How the information you provide will be assessed?
Lenders will be looking at the information you provide in some detail. The majority will want the background portfolio to cover itself, in aggregate, at 125% assuming a rate of 5.5%. Some are going large on this and want 145% coverage. Equally, the loan to value on the portfolio will come into play, with some lenders declining applications where the aggregate LTV is more than 65%, and others saying that they will simply be taking a common-sense approach to the background gearing. One thing to note, lenders will be validating the information on the spreadsheet by carrying out (usually online) research on the values and rents – most lenders will be sampling 25% of the portfolio.
What this means is that the portfolio spreadsheet needs to be accurate. We are often sent ‘up to date’ portfolios only to find that the client has left off their latest two purchases or have missed off some rent rises. This could make the different between a successful and a failed application!
At the moment, it’s very early days into the new regime, so how the process will pan out for both lenders and borrowers remains to be seen. So far, things seem to be OK although we expect some backlogs with lenders whilst they bed in their new processes. And no doubt, there will be some to-ing and fro-ing in terms of questions on the information they receive.
My personal opinion is that lenders’ requirements for portfolio landlords will evolve, as they really get to grips with their process and policies and where this has landed them in comparison with the rest of the market. These things usually take around six months to settle down, so I will review the situation again in the spring of 2018.
The very good news however, is that it is by no means doom and gloom for portfolio landlords. Lenders are still looking to lend to you and you can still get finance – just make sure that you are dealing with a broker who really does understand this part of the market.
To discuss your circumstances call our buy to let team on 0345 345 6788, or request a call back.