Buy To Let Changes
From 30th September there are more changes coming for Buy To Let borrowing. Hot on the heels of the changes introduced earlier this year the second tranche kicks in this month.
Many lenders are already adapting and asking questions in advance of the changes to affordability calculations.
The new regulations are aimed at reducing irresponsible lending in the buy to let sector, the Bank of England (specifically the Prudential Regulation Authority) are placing new, tougher requirements on lenders from 30th September. These include the interest rates-dependent ‘stress test’ on new mortgage applications.
The big change is that lenders will need to review a landlord’s entire property portfolio when making a decision on their single property application. This will hit multi-property landlords hardest, especially if one or two of your properties aren’t turning a profit or are just about washing their own face.
Remember that landlords have already has the changes to stamp duty to contend with, so these changes are something else to make life a little bit harder.
As with any change to regulation there comes a large grey area. If you have a portfolio where some properties are making a profit and other are not, is this going to be acceptable? Some lenders will look at income across the whole portfolio, others will not.
If one thing is certain then the days of simple buy to let mortgages are probably gone. Mortgage advice now is probably more essential than ever.
First things first, limited companies are not for everyone. What the limited company option does deliver is buy to let lending outside of the new regulations. Lenders will still be monitored so expect a similar structure to how mortgages are assessed, but you can also expect a little more leeway in the affordability calculations.
The increase in company buy to let demand has seen lenders increase their offering to this market, Charlotte Nelson of Moneyfacts said;
“As the reality of April’s tax changes starts to bite, the proportion of deals available to limited companies has grown dramatically, having increased by 7% in just six months… With the extra pressure in the BTL market and the added interest in limited companies, it is no surprise that lenders have leapt into action and started offering more deals to limited companies”
There is definitely a trend with more limited company applications being seen.
What To Do
The days of applying for a buy to let mortgage based on the income of that property in isolation are gone. Landlords need to understand their whole portfolio and the income it generates.
As always, the way a lender (and regulator) will assess the portfolio is different from how the landlord will. The key is for the landlord to provide a full picture of their portfolio, making things easy for the lender to understand and to justify lending will be more important than ever.
The spreadsheet below allows a landlord to summarise their portfolio, detail the income and the mortgage levels. The spreadsheet will allow a lender to have an immediate oversight of the portfolio and should cover most of the requirements post the new regulations.
Download the portfolio spreadsheet here
For any questions about the new changes or you want to know the best options for property finance then please get in touch or add your comments and I can respond.
By Dave Farmer