Why getting a mortgage will be harder for landlords

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27 Sep 2017

Landlords with multiple properties may be barred from banks

Author: Greg May

From the 30th September 2017, the mortgage lending criteria for landlords with four or more buy-to-let properties will change as they will be considered ‘portfolio investors’.

The new rules being introduced by the Prudential Regulation Authority mean that lenders will now take into account landlords’ total income versus borrowing across ALL properties. This change in criteria is designed to ensure that borrowing on any new properties does not have a negative impact on the landlord’s ability to repay loans on other properties within their portfolio. 

Under the current system, lenders assess a landlord’s application based on the rental income and value of the property they are lending against.

The new regulations will mean that not only is the property being lent against considered, but also the rental income, geographic spread, value and any loans across ALL properties in a landlord’s portfolio.

This will only affect a very small proportion of landlords as many either own their properties outright or have fewer than four properties. UK Finance found that just 11% of the UK’s 1.9 million landlords own four or more properties, and an even smaller proportion use mortgages to finance their properties.

Only those with poor cash flow or a high number of properties in one geographic location need to be concerned. This highlights the advantages of obtaining regular and up-to-date rental valuations to ensure your property is marketed for the correct price. And, for those with multiple properties in one location, seeking expert financial advice before the changes come into effect is advised.

This stricter criteria means a lot more work for lenders, and may result in them refusing to offer mortgage services to landlords with large portfolios as they are unable to cover the additional workload.

The main impact of these changes will be the time it takes for a mortgage application to go through. With all of the additional considerations for lenders, we recommend allowing a minimum of three months for the application to be processed.

This change is likely to mean that landlords will have a more limited choice of lenders and products when they come to purchase a new property or remortgage their existing ones.

It is also advisable to check that your current lender will be continuing to offer their services to ‘portfolio landlords’ and, if required, you can refinance with them in the future. If they are not going to continue to offer this service, get in contact with our mortgage services team who will be able to search across thousands of products across over 90 different lenders to find the right deal for you.

This changes also highlights the importance of keeping up-to-date, detailed records for all of your properties- this way, when the time comes to remortgage, you will have all the information needed for your application to hand. This should include; current mortgage value, rental income, outgoings and rental profits along with tax returns for all properties you own. Your letting agent may have already compiled this information for you as part of their portfolio service.

If you have not done so in the past six months, now is most definitely the time to review your portfolio and any associated mortgages to ensure you are on the best possible rate, making the maximum amount of profit and, most importantly, won’t run into any difficulties in financing or growing your portfolio in the future.

If you are a portfolio landlord and have concerns about financing or growing your portfolio, please get in touch with Romans Mortgage Services team on 0118 3219 536.

 

 

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

Your property may be repossessed if you do not keep up repayments on your mortgage.

There will be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

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