New lending rules for investors
From 1st October 2017, portfolio investors will face some changes when applying for buy to let mortgages.
Any landlord with a portfolio of more than four mortgaged properties will now face a new set of assessments brought in by the Bank of England. The new rule will come into force for landlords who own three mortgaged properties and are seeking to purchase a fourth; landlords will now be required to provide financial details of every single property within their portfolio. This move allows lenders to safeguard themselves against underperforming portfolios and stress test landlords to determine if their portfolio of properties would stand up against rate rises.
There’s a few things you can do as a landlord to prepare yourself ahead of your next property purchase*:
- Collate all details relating to every property in your portfolio – this will include proof of ownership and tenancy contracts.
- Lenders will also look at any outstanding value on existing mortgages, so account details will be necessary for approval.
- Bank statements, other proof of income, and tax returns should be readily available to ensure all mortgage payments and rental income is correctly checked and cross referenced.
- Submission of any relevant business plans will be required.
Unlike residential mortgage loans, the approval of buy to let mortgages has always traditionally been judged on property performance rather than personal circumstances. Many property experts are viewing the new rules as positive for the buy to let sector as it means that property portfolios will be forced to be managed more efficiently, proving more beneficial for both landlords and their tenants. Investors just need to ensure they are up to date and proficient with paperwork when submitting applications, and be aware that the lending process may take slightly longer than usual in these cases.
Graham Davidson, managing director at Sequre Property Investment, comments on the upcoming changes:
“After the Mortgage Market Review (MMR) back in 2014, it was inevitable that a similar process would be put in place for landlords at some point. What we need to be mindful of is that none of these additional tests are based on capital growth; they’re all income generated, so landlords with low gross yielding properties will be the ones who ultimately fail the stress tests. Once the new rules are in place, landlords not only need to prove that their portfolio can stand on its own two feet now, but will also still be standing if there was a rate increase.”
“Buy to let is still the favoured investment option in the UK. Investing in property has always been about timing and investors now more than ever need to be savvy. Landlords will need to consider all the changes recently implemented and determine whether the investment is worthwhile. It’s no secret that those most vulnerable are those who have chased capital growth in the south and have ended up with low yielding properties, these landlords are not likely to pass the upcoming stress tests whatsoever.”
“It may take other lenders some time to get something in place. Landlords who are considering investing or remortgaging their properties would be wise to give themselves additional time and to make sure all paperwork is up to date and ready for lenders to quality check.”
If you’re a landlord wanting to build a portfolio and would like some more information on how the changes may affect you, call Sequre today. We can help provide help and advice on how best to manage your assets so you can maximise the return on your investment. We specialise in sourcing properties that generate high yields with great potential for capital growth, and often already tenanted, so you know your buy to let will be performing as efficiently as possible from day one. To find out more about our services and the properties we offer, contact us on 0800 011 2277.
*Be aware that this will be dependent on your individual lender. Sequre can recommend mortgage brokers to further discuss any details on these new rules so for more information please call us on 0800 011 2277.