New rules on borrowing for portfolio buy-to-let investors
From the 30th September this year, landlords with four or more buy-to-let properties will have to satisfy different criteria to secure mortgage borrowing, as they will be considered ‘portfolio investors’ under new rules being introduced by the Prudential Regulation Authority.
In order to comply with the new portfolio landlord underwriting standards, lenders will now be looking at the total income versus borrowing across all a landlord’s properties, to ensure that any new borrowing doesn’t adversely affect affordability for other properties within the portfolio.
This means more work for lenders, who will have to investigate each mortgaged property held by the landlord in more detail, then apply an Interest Coverage Ratio (ICR) across the portfolio. This ICR will vary, depending on the individual lender and the number of properties owned with a mortgage
In addition, in some cases, the lender will also take into account the landlord’s individual earned income/salary.
The reality is that the majority of landlords will not be affected. A survey carried out by the Strategic Society Centre in 2013, showed that 72% of private rented sector (PRS) landlords had just one rental property, with 12% owning three or more. A further survey of 1,071 landlords, carried out by YouGov on behalf of Shelter in mid-2015, found 59% had one buy-to-let, with 32% owning between two and four. This survey also revealed 45% of landlords owned their property/ies outright, with no mortgage borrowing, and a further 40% had a loan to value of 50% or less. As such, it’s unlikely that the buy-to-let sector will experience much disruption as a result of the new rules.
For those who own four or more properties, as well as those who currently have three and plan to buy a fourth, the change is likely to mean a more limited choice of lenders and products when they come to purchase or remortgage. But, realistically, only those who have highly-leveraged properties and are not seeing much cash flow need to be at all concerned.
If you are a portfolio landlord and have any concerns about the potential availability of finance for either a new mortgage or a remortgage, please click here and one of our advisers will be very happy to talk through your options.
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