At the end of September 2017, the Bank of England’s Prudential Regulation Authority (PRA) introduced new guidelines that affect portfolio landlords applying for commercial mortgages to buy more property.
Portfolio landlords are defined as those with four or more properties that are mortgaged. Landlords with fewer houses, or those with fewer than four properties with outstanding mortgages, are not affected by the changes.
The new underwriting rules want lenders to undertake a stricter assessment of the business of the landlord, taking into account all income sources that the landlords receive, and making sure that rents cover more than 100% of the mortgage repayments.
A Which? article from September 2017 notes that the new rules have been implemented in different ways by lenders and there is no consistency in the new terms lenders have introduced; for example, Barclays has only introduced small changes, while Santander has stated that it will not lend to any portfolio landlords. Other lenders want rents to cover between 125% and 145% of the mortgage repayments.
The changes could increase the time it takes lenders and brokers to process the paperwork involved in loan applications, and this could raise fees. Some portfolio landlords are considering forming limited companies to own their properties as these are not subject to the same affordability rules.
For portfolio landlords trying to find the best mortgage deals, a mortgage broker can be a big step in the right direction. Brokers should by now be familiar with how various lenders are implementing the PRA guidelines and can advise landlords on favourable deals.