As previously reported on the Northwood blog, the new Prudential Authority Regulations have been rolled out in two stages.
The first stage, released on 1st January 2017, dealt with “affordability calculations” and recommended that lenders increased what is known as the “stress test” rate for BTL mortgage coverage. Lenders were advised to raise this from a typical 125% of coverage of the rent by the mortgage to 145%.
The bottom line to this is that landlords are likely to be able to borrow less, particularly in areas of low rental yields. This in turn means putting in a larger deposit.
The second phase of the regulations, which was embedded on the 1st September 2017, was aimed at stricter underwriting for portfolio landlords. The PRA defines portfolio landlords as those with four or more properties.
Lending to portfolio landlords is now assessed using a specialist underwriting process.
When applying for BTL mortgage finance, portfolio landlords will need to provide a wider range of documentation and may be asked to provide:
* Portfolio schedule
* Business plan
* 12 month cash flow forecast statement
* Statement of assets and liabilities
In an article in FT Adviser titled “Buy to Let borrowers burdened by PRA rule changes“, Liz Syms of Connect commented:
“This means lenders do not just have to look at the subject property but they must also look at the client’s existing portfolio, and make a judgement based on that and on all of the risks going forward, because of all the other changes in the marketplaces.”
These changes include the removal of mortgage interest relief and base rate rises.
It is likely that this will significantly restrict how quickly landlords can build their portfolios, as many lenders are declining to operate in this space and take on “portfolio landlord” business.
Eric Walker, M.D. of Northwood commented:
“The new PRA regulations have highlighted how important it is for landlords to receive specialist advice from a reputable mortgage broker.
A broker with a thorough understanding of how each lender has interpreted the guidelines, will be able to match the landlord client profile with the most appropriate lender for them and their individual circumstances.
As each mortgage application is going to take a significant amount of time and paperwork, I think we will see landlords forming long-term relationships with a specific broker, who will work closely with them to ensure they can achieve the finance to grow their business”.
This helpful video by Shawbrook Bank gives a clear explanation of the changes:
At Northwood, we can connect you with professional mortgage advisors to ensure you get the best advice on how to finance your property investments.
It is our aim to support our landlords throughout their property ownership lifecycle and ensure they survive and prosper, no matter what challenges arise! Professional advice is now becoming de rigeur for landlords, and is particularly important in the areas of finance and tax.
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