Buy to Let Landlords – Changes Implemented to Lending Requirements
Our Head of Litigation and Dispute Resolution, Julian Wintle, outlines the new lending requirements for buy to let landlords that came into force yesterday.
WHO IS AFFECTED BY THE CHANGES IMPLEMENTED TO LENDING REQUIREMENTS?
On 1 October 2017 new rules were introduced by the Prudential Regulation Authority to tightened further affordably requirements on buy-to-let mortgages.
The new rules apply to all landlords who have four or more properties which are either mortgaged or re-mortgaged on a buy-to-let basis. These landlords will be classed as having a ‘property portfolio’.
WHAT ARE THE CHANGES LANDLORDS WILL FACE ON BUY TO LET PROPERTIES?
Landlords applying for a new buy-to-let mortgage will face a rigorous affordability assessment of their means. In particular:
- Lenders’ assessment of affordability will include a review of tax liabilities, verified personal income, business plans and any future interest rate increases;
- Borrowers will have to provide evidence to the lenders that the mortgage repayments are covered by the rental income by a minimum of 145% at an interest rate of 5.5%. What this means is that the lenders will need to check borrowers can afford to repay them back if the interest rate was to hit 5.5% on the buy-to let mortgage during the first five years.
- For borrowers owning four or more properties, lenders will assess the whole property portfolio including properties mortgaged to other lenders.
This is a departure from the current approach of lenders who focus on the value and the rental income that is generated from the particular property. Borrowers will be expected to provide more information to lenders as part of the mortgage application process.
WHAT ARE THE REASONS FOR THE CHANGE?
These changes are being introduced to ensure landlords, particularly inexperienced landlords, are making informed decisions and to protect the broader economy.
HOW WE CAN HELP
At Bradley Haynes Law, we are experienced in acting for landlords and investors in all aspects of property ownership and management, including ownership structure, property acquisition, mortgage and disposal, terminating tenancies and recovering possession from defaulting tenants.
For a free half-hour, initial meeting under the Lawyers for Business scheme to discuss your requirements, contact Julian at: julian@bradleyhayneslaw.co.uk or on: 01905 900919 to book your appointment by telephone or in person.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 2 October 2017. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.