James Pickford, writing in the Financial Times in November 2016, said that new affordability tests could mean that portfolio landlords could face a rise in interest costs on commercial mortgages. A portfolio landlord is defined as one who owns four or more properties.
Currently, when accessing an application for a commercial mortgage on a buy-to-let property, the lender looks at whether the level of rent will easily cover the mortgage repayments.
New Bank of England regulations in September 2017 mean that portfolio landlords who apply for a commercial mortgage for buy-to-let properties will have the viability of all their outstanding loans assessed. This will take considerably more time to process than looking at a single property. Pickford claims that lenders may recoup the cost of this by charging more interest on commercial loans.
The Bank of England’s Prudential Regulation Authority (PRA) said that the reason for the stricter affordability tests was that mortgage arrears are greater for landlords who own several properties. It also thinks that the growth of the buy-to-let market could make house prices more volatile.
The PRA said that the decrease in landlords’ mortgage interest tax relief can affect the profitability of their investments, and this must be taken into account when accessing a new mortgage application for buy-to-let property.
Despite these concerns, portfolio landlords remain a minority. A recent government survey found that more than three quarters of landlords own just one property and will not be affected by the new affordability test.