New affordability rules could benefit smaller lenders

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The Prudential Regulation Authority (PRA) has introduced stricter affordability rules for portfolio landlords and these could help out smaller lenders, an FTAdvisor.com article from September 2017 has suggested.

Portfolio landlords with four or more mortgage properties face stricter affordability rules from September 30, 2017. These are designed to make sure landlords can afford their commercial buy-to-let mortgage repayments if interest rates rise. The Bank of England has recently hinted that its interest base rate will rise soon, which would make variable rate commercial buy-to-let mortgages more expensive.

When assessing mortgage applications from portfolio landlords, the value of the landlord’s business will be assessed along with any other income source they may have.

The new rules are likely to mean that a commercial buy-to-let mortgage application for portfolio landlords will be more complex and time consuming to process. Landlords will probably be required to submit more financial and other documents to support their application than non-portfolio landlords.

Smaller lenders, often known as challenger banks, may take this as an opportunity to encourage portfolio landlord mortgage applications. Challenger banks are often not as automated as larger banks, so are used to a degree of manually checking applications.

A commercial mortgage broker is able to search the market and is familiar with the lenders’ underwriting criteria. If the broker thinks that a challenger bank will provide both a good interest rate and a high level of customer service, it will recommend such a bank to portfolio landlord clients.

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