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Looking to Expand? New BTL Mortgage Rules Apply

In all the turmoil of the last year, the introduction of Right To Rent and cracking down on rogue landlords, more changes are now upon us. New rules for BTL mortgage are set to shake up the rental sector once again. While some will undoubtedly offload property, for others the changes mean greater opportunity.

 

Tougher Standards of Lending

Tighter stress tests were introduced in January and now the second phase is about to get underway. From the 30th of this month, the PRA (Prudential Regulation Authority) will enforce tougher standards on lenders selling mortgages for Buy to Let Property. However, some lenders have had the standards in place since the beginning of the month, if not before, in order to ensure early compliance.

  • Phase 1 began earlier this year: Stricter affordability checks including stress tests for potential interest rate rises
  • Phase 2 kicks in on the 30th: Stricter controls on lending based on portfolio size. A report revealed that the more properties a landlord holds, the higher chance of repossession

 

What Sort of Things Will They Look At?

How mortgages for landlords with four or more properties are underwritten will change. New affordability checks will be imposed on the new “Portfolio Landlord” designation. From now on, lenders will examine your entire portfolio to determine whether you can afford to add another property to the portfolio. Lenders must request the full list of rental properties, the landlord’s business plan and a detailed cash flow projection.

There are no specific criteria on how your application will be examined, but you generally expect that lenders will look at your experience, present rental income across existing properties, historical cash flow (as well as projected future cash flow) affordability, assets and liabilities and outstanding mortgages on existing properties.

 

What This Could Mean for the Market

Along with the other changes imposed on the industry in the last few years, it’s likely to free up a number of properties presently owned as BTL. Landlords are likely to sell off those with the lowest yield in order to buy more potential high-performing stock. The government is trying to free up stock for family homes along with the building of new homes to make up the shortfall.

This will also affect lenders such as banks. In an announcement earlier in the year, high street bank Santander said they would not lend to so-called “Portfolio Landlords”. However, it is not all bad news. Some banks have welcomed the move by improving their lending criteria. NatWest, for example, now limit their offerings through mortgage brokers to ten properties, raising it from four. As ever, it is best to shop around for mortgages to get the best deal and discover which is best for your unique business profile.