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Tuesday, 24 October 2017
AS of last Saturday, the mortgage lending criteria for landlords with four or more buy-to-let properties has changed, whereby they are now seen as “portfolio investors”, writes Lucy Boon.
The new rules introduced by the Prudential Regulation Authority mean that lenders will now take into account landlords’ total income versus borrowing across all properties.
This change in criteria is designed to ensure that borrowing on any new properties does not have a negative impact on the landlord’s ability to repay loans on other properties within their portfolio.
It means that, not only is the property being lent against considered, but also the rental income, geographic spread, value and any loans across all the properties in a landlord’s portfolio.
The advice from our local agents would be to make sure landlords have up-to-date rental valuations to ensure your property is marketed at the correct price, as well as seeking expert financial advice — as it’s likely landlords will now have a more limited choice of lenders and products when they come to purchase a new property or remortgage their existing ones.
It’s also a good idea to check current lenders are happy to offer their services to a “portfolio landlord”. But what else do they have to say? Standard Property asked them just that...
Greg May (right), director of mortgage services at Romans in Hart Street, said: “The changes highlight the importance of keeping up-to-date detailed records for all of your properties. This way, when the time comes to remortgage, you will have all the information needed for your application to hand.
“This should include: current mortgage value, rental income, outgoings and rental profits, along with tax returns for all properties you own.Your letting agent may have already compiled this information for you as part of their portfolio service.
“If you have not done so in the past six months, now is most definitely the time to review your portfolio and any associated mortgages to ensure you are on the best possible rate, making the maximum amount of profit and, most importantly, won’t run into any difficulties in financing or growing your portfolio in the future. If you are a portfolio landlord and have concerns about financing or growing your portfolio, we’d be happy to help.”
James Donigan, (right), director at Penny & Sinclair in Hart Street, said: “The changes in the mortgage market are targeted at buy-to-let landlords with portfolios of four or more properties. Mortgage lenders’ affordability calculations when deciding whether to offer a buy-to-let mortgage, and under what terms, will take into account the applicant’s entire portfolio and a decision made on the basis of income, liabilities and the value of the portfolio as a whole.
“This is likely to restrict the number of mortgage products available and could result in some landlords disposing of the less profitable parts of their portfolios.
“Overall, the changes in the mortgage market have made investing in property less attractive, and buy-to-let investors are far fewer in numbers than in 2015, when the additional stamp duty for second home owners was introduced.
“The upside of this has been more choice for first-time buyers, and there are still very good mortgage products available for these people.
“It has to be said that around 40 per cent of transactions nationwide are cash purchasers and locally many of our investors do not require mortgages, so this may not have much of an impact in our immediate area.”
Regarding our above story on house prices falling, James added: “With the market currently characterised by limited availability of stock, any extra supply will be welcome news for buyers.
“If everyone I have met who was thinking of selling but couldn’t find [somewhere to buy] just put their house on the market, I think the current reduction in transactions would be behind us!”
Adrian Moody (right), head of lettings at Savills in Bell Street, said: “Buy-to-let investors have recently been hit by a succession of tax policies, introduced in an attempt to level the playing field with first-time buyers. This started with a cut to mortgage interest tax relief, and starting from the end of September buy-to-let landlords will also be facing new mortgage regulation and much tighter lending criteria. For some this may lead to much higher levels of taxation.
“This could prompt many existing, or would-be, landlords to assume that now is not the time to invest — however, this is not necessarily the case. More discerning landlords should look towards areas where there is an active and established rental market and invest in low-cost properties. These low-value homes have a higher yield and will also give more borrowing ability.
“While the mortgage regulation changes may make buy-to-let investment trickier, it is not impossible. Landlords must remember that a property’s profit differs from its yield, so investors must do the sums and work out all cost implications, from various taxes and fees, before joining the buy-to-let market. Properties must also be well-maintained and desirable in order to entice tenants all year round to ensure the highest revenue is made.”
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