From 1st October, the Prudential Regulation Authority (PRA), part of the Bank of England, will start to enforce tougher standards for landlords with four or more mortgaged properties, meaning landlords will need to meet new requirements.
Following the introduction of stricter affordability tests imposed by lenders at the start of the year, the latest set of requirements from the Prudential Regulation Authority are targeting loans to ‘portfolio landlords’ to prevent higher risk buy-to-let lending. The new rules will apply whether properties are in a landlord’s name or owned through a limited company.
What does this mean for landlords?
It means that lenders will be undertaking a full analysis of a landlord’s entire property portfolio as part of the lending process, to decide whether that person is a good candidate for a loan or not. Although the process may vary between lenders, it is likely to include a review of:
- The total mortgage borrowing across an entire portfolio
- Property investment experience
- Assets, liabilities and income (including tax liability)
- Location of properties
It is possible that the changes could contribute to a longer application process because of the additional work required to assess suitability. Some lenders will have efficient systems in place that enable them to evaluate applications quickly. For others, the increase in the amount of information required could mean a longer wait for a mortgage decision.
There is also much uncertainty about whether lenders will continue to operate in the portfolio landlord market. Although some, including Paragon Mortgages, have already stated they will carry on lending regardless of the number of properties, others are more reluctant. If a significant number of lenders do decide to leave this market, it may affect competition. Similarly, with the remaining lenders faced with a larger volume of business, the application process for landlords could be even more drawn-out.
What can landlords do?
Landlords who have fewer than four properties, or don’t need to take out a mortgage, do not need to worry. Portfolio landlords (those with four or more properties) who wish to buy a new property or remortgage existing properties, should seek advice to make sure their paperwork is in order. Although the rules will vary from lender to lender some of the information likely to be required includes: -
- Addresses and proof of ownership for all properties
- Details of any current mortgages
- Proof of rental income, usually bank statements and tenancy agreements
- Evidence of any other income - tax returns or company accounts
- Business plans and cashflow forecasts