Landlords who own four or more mortgaged buy-to-let properties can soon expect lenders to look across their whole portfolio if they want to apply for a mortgage on a new property. Under Prudential Regulation Authority rules, from the end of September lenders will have to take into account all the buy-to-let properties you have a mortgage on when deciding whether to lend. This is so they can be certain landlords will be able to afford any new addition both now and if interest rates rise in the future.
What impact will this have?
So far, not many lenders have confirmed exactly how they intend to implement the new rules. Some, however, have indicated that they may no longer offer mortgages to those with larger property portfolios, which could mean mortgage choice becomes more restricted. Those who do continue to lend to portfolio landlords are likely to want to see more information about the portfolio as a whole, including details of rental income, as well as landlords’ overall costs and personal income and tax liabilities, to ensure that landlords aren’t over-exposed. This means that portfolio landlords may have to produce larger quantities of paperwork to support their mortgage applications, so it’s important to ensure all records are up to date.
How to prepare for the changes
If you are a portfolio landlord and are planning to remortgage or add to your existing properties, you may want to consider acting sooner rather than later. Although the deadline for lenders to implement the new rules is September 30, it’s likely that some lenders will announce their approach prior to this. If you haven’t reviewed your buy-to-let mortgages for a while, it’s therefore worth checking the rates you are on now to see if you might be able to remortgage to a better deal.
Remember other PRA changes
If you are intending to review your portfolio in the next few months, it’s important to take note of other PRA changes which have already come into effect. For example, lenders must apply a ‘stress test’ of a minimum interest rate of 5.5% for the first five years of the loan. However, some lenders apply lower stress tests on five-year fixed rate buy-to-let deals. Because the rate is fixed over this period it won’t be affected by rising interest rates and so avoids the need for a higher stress test. Lenders similarly may adopt a more flexible approach if landlords are remortgaging on a like-for-like basis. Some lenders may also adopt a less restrictive approach for landlords who are basic rate taxpayers, as tax relief changes introduced in April which restrict the amount of tax relief they can claim only affect higher or additional rate taxpayers. For more tips and advice like this, check out our Facebook page, LinkedIn page or follow us on Twitter.
