September 2017 sees the introduction of the new buy-to-let lending standards by the Bank of England (PRA) which focusses on tighter requirements on lenders to lend responsibly, in particular to investors that have, or plan to have, 4 or more buy-to-let properties.
THE PRA is striving to make lenders underwriting standards more consistent; and to ensure that lending to investors is responsible and affordable. They have now classified investors as either having <4 properties or as “portfolio landlords” who have 4 or more mortgage properties. This is because the PRA found that arrears rates increase as portfolio size increases.
The initial PRA changes were implemented at the start of 2017, this included the minimum affordability requirements. The next phase is to be implemented by September 30th 2017 which puts onus on lenders to ensure they have a complete understanding of the investors property portfolio.
How are investors going to be classified?
< 4 properties
Regardless of shareholding if a property is mortgaged and the investor has a maximum of 3 properties, they will sit in this classification. These are typically considered to be more straightforward investors.
This classification is the most affected; if the investor is planning to buy and mortgage or re-mortgage their 4th or more investment property they will be subject to more complex underwriting. Lenders will be expected to assess the investors experience in the market including assessing their full portfolio of properties and any outstanding mortgages, the assets and liabilities of the investor and the merits of any new lending in the context of the investors’ existing property portfolio.
How will the lenders now approach portfolio landlords?
Lenders will have to take responsibility for a full assessment of the investor’s cashflow, assets, liabilities, experience, projected profits, gearing, personal income, risk spread, investment strategies and then make their lending decision based on the outcomes of this in-depth scrutiny.
What does this mean for portfolio landlords?
They may well be asked for a wealth of information when applying for finance to ensure the lender can adequately assess their situation; this may include evidencing all income, providing a business plan, bank statements, asset and liability statements etc. For this reason, it probably is reasonable to assume that the turnaround time of a mortgage may be longer due to the extra level of assessment required when underwriting and potentially, lenders acceptance rates for portfolio landlords may decrease.
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