On September 30, new underwriting rules by the Pension Regulations Authority come into force, introducing stricter affordability tests for portfolio landlords.

A portfolio landlord is the name given to one who has at least four properties that are mortgaged using buy-to-let commercial mortgages. Although not all lenders have published exactly how they will implement the guidelines, there are some areas that they are expected to look at when making a decision on new commercial mortgage applications.

Lenders will need to be satisfied that the landlords have sufficient experience in running a buy-to-let business. All sources of a landlord’s income will be taken into account, not just the rental income. Lenders may also examine the personal expenses of the landlords as well as their business expenses, and the total amount of mortgage borrowing on all of a landlord’s properties will be considered.

Landlords will need a sound business plan that includes cash flow predictions. Part of this plan will include the expected rent levels for the property the landlord is buying. Lenders may research similar property in the same area to find out if the expected rent is realistic.

A commercial mortgage broker should be able to help portfolio landlords provide all the relevant information the lender requires.

The new guidelines make arranging commercial mortgages for portfolio landlords more complex, but as long as landlords are prepared and keep their business records up to date, commercial buy-to-let mortgages will still be available and profitable.