The Prudential Regulation Authority, part of the Bank of England, will start to enforce tougher standards for landlords with four or more mortgaged properties from 30 September 2017, with some lenders already applying the new rules from today.
Portico comments on the new buy-to-let mortgage lending rules hitting landlords this month:
Portico’s Regional Director, Mark Lawrinson, comments on the upcoming buy-to-let mortgage changes:
“Under the new rules, if you want to make an application for a buy-to-let-mortgage on a new rental property, the lender will have to look at your entire property portfolio when they decide what mortgage deal they can offer on a single property.
For example, if you have six properties and four are generating enough rental income to cover mortgage payments and then some, but the other two are not, your new mortgage application may not be approved by some lenders.
As of 30th September, lenders will also require a full breakdown of rental properties, a business plan, and cash flow projection to support a new application.
As a result of the new buy-to-let lending changes, we may see a surge of rental stock come back on the market for sale as landlords look to offload their weakest performing properties in order to get further lending on more potentially profitable properties.
The new rules could also have a knock-on effect on rental prices, as landlords look to cover any shortfalls or carry out works to a property to both increase the capital value and the rent, in turn improving the yield and the return.”
When asked by Portico, seasoned landlord and London NLA representative, Richard Blanco said:
“Landlords who want to remortgage or capital raise before being assessed through the new criteria will need to get their skates on. They may be too late for some lenders who applied the new rules from Friday 1st September.
Many lenders will unfairly assess landlords’ existing mortgages through a 145% x 5.5% prism even though they originally got their mortgages on looser criteria years ago. This could create mortgage prisoners: borrowers who are unable to switch lenders. This is a reminder that if you do remortgage to another lender, always choose one that has a good track record in switching customers to competitive follow on rates once the initial product has expired.
Landlords are gradually waking up to the fact that they are having to borrow at a much lower loan to value, so they may not get further advances because rental coverage has to be much higher. If their regular lender has decided not to do business with ‘portfolio landlords’, they may need to take their business elsewhere.
“A few lenders are likely to withdraw from this arena as a result of the new rules. Santander have already indicated they will not lend to portfolio landlords for purchases or additional borrowing, while others have improved their offering through brokers – NatWest, for example, have gone from a maximum of four properties to 10.”
The new lending changes come on top of the tighter stress tests which came into place in January this year.
Mark Lawrinson adds: “As our Interactive Yield Map shows, rental yields in London are extremely low, so tougher affordability checks mean that a lot of properties simply won’t cut it as viable buy-to-let investments. We have certainly seen less professional landlords adding to their portfolio this year, but there is still money to be made in buy-to-let if you invest smartly.”