New Buy to Let Mortgage Rule from Portfolio Landlords from the regulator. Get set for a tougher underwriting time if you have 4 or More Buy to Let Properties.
Buy to let landscape for professional Portfolio Landlords to change in Sept 17 with yet another attack on the Landlords . Those who are avid readers of my buy to let articles will have seen Lenders change their underwriting policies in January to adhere with the directives from the PRA on rental calculations. In September the second raft of directives from the review hone in on the mortgage sustainability of portfolio landlords.
In preparation, the first lender to response to the directive The Mortgage Works (TMW), has revealed how it intends to comply with the PRA recommendations, and I thought it prudent to share with you.
Who is a Portfolio Landlord?
Firstly let’s start with TMW definition of a “portfolio landlord” as the new rules should only apply to persons in this category:
- A borrower with 4 or more distinct mortgaged Buy to Let rental properties.
- This figure includes any applications currently in progress.
- Foreign properties are ignored.
NEW Rental Coverage – from 30/9/17
Interest Cover Ratio (ICR) of 145% will apply to any new applications, regardless of your client’s tax status. The minimum ICR for Houses in Multiple Occupation (HMO) will remain at 170%.
NEW Affordability Assessment – from 30/9/17
Following on from the PRA explicit directions all portfolio landlord applications will be subject to an affordability assessment. This extends beyond mortgages with TMW to take into account all mortgage properties.
The start point will be 3 months’ bank statements which they will look to cover the mortgage payments and rental income being received. Full details of the portfolio will also be requested.
And depending on the complexity of the case and size of the portfolio, for a limited number of cases, they may request further supporting information.
For example, in some cases they may need:
- Additional income proof e.g. HMRC SA302 Tax Calculations, payslips etc
- Asset and Liability statement
- A Business Plan that outlines details such as:
– How long the properties have been owned?
– The landlord’s current approach and future plans of portfolio management
TMW has been very helpful by sharing their intentions, and brave to be the first one out of the blocks, as it allows us all to plan.
Unlike some Buy to Let Lenders TMW does NOT currently have a minimum earned income requirement and as things stand this is set to continue, however, from my experience Underwriters rarely ignore facts presented to them and this greater degree of documentation is almost certainly going to lead to more in depth scrutiny – after all that is the PRA’s intention! So it’s fair to expect a slower process and an increase in declinature rates.
If you are sitting on a 4 or more properties it should be a call to action to remortgage now!
Niche Advice offers suitable buy to let mortgages including those for portfolio landlords. To find out more completed our online form under the Contact tab on this website or call T: 020 7993 2044.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.