Guest Blog: Changes to Buy to Let Mortgages
14th September 2017
On 30th September there are changes happening with regard how lenders assess and sanction Buy To Let mortgages. As if the already hard hit property investor hadn’t had enough, they are about to find life getting yet more difficult. Hot on the heels of the changes introduced earlier this year the second tranche of mortgage regulation kicks in this month and many landlords don’t know what it means.
The new regulations are aimed at reducing irresponsible lending in the buy to let sector. They are a throwback to the days of George Osborne (remember him?) and his plan to control the rental market and make it easier for first time buyers.
As is common with regulation, it is likely to impact the least guilty the hardest. The Bank of England (via the Prudential Regulation Authority) are placing new, tougher requirements on lenders and it all starts this month.
The regulations require lenders to look more widely at a property investor’s portfolio. This includes new ‘stress tests’ on mortgage applications and requiring the lender to assess a landlord’s ‘whole’ portfolio.
This approach will hit multi-property landlords hardest, especially if one or two of their properties are running a loss or marginal profit. Most landlords will have these units within their portfolios.
Remember that landlords have already had the changes to stamp duty to contend with. The new changes are another challenge, and they don’t come without the usual grey areas either.
If you ever thought regulation would be black and white then you’re somewhat short sighted, if there is one thing regulation guarantees it is grey areas.
- Will all lenders do thing the same way? No they won’t
- Will all lenders will look at income across the whole portfolio? No, some will some won’t
If one thing is certain then the days of simple buy to let mortgages are probably gone. Mortgage advice is now more essential than ever and it needs to come from both your professional mortgage broker and your accountant.
The key will be for landlords to properly explain their portfolio, explain the income, the borrowing and what the portfolio is made of. There is a free spreadsheet here which will help cover off the things lenders need to know and will make borrowing a little simpler.
Let’s be straight, limited companies are not for everyone. What limited company option does is mean that buy to let lending falls outside of the new regulations. Lenders will still be monitored so expect a similar structure to how mortgages are assessed, but there will be more leeway and it will potentially offer more options around borrowing
Leeway is something that could be a vital commodity, especially for multiple property owners who need that extra leg room in the rental calculations or have several mortgages falling due for renewal over the next few years.
If you want to know more about the impending changes then this one minute video summary may help, for anything more in depth then get in touch.
By Dave Farmer, Lime Consultancy