Commercial mortgage brokers are worried about landlords’ lack of awareness of new buy-to-let mortgage policies introduced at the end of September 2017. The Prudential Regulation Authority (PRA) rules are predicted to have major implications for portfolio landlords this year, so it's imperative that they address any knowledge gaps quickly.
What are the new rules?
The new rules are designed to reduce irresponsible lending by requiring stricter financial standards for landlords with four or more properties (dubbed ‘portfolio investors’). They include the stipulation that mortgage providers must now consider the financial performance of all properties in the portfolio as a whole when making lending decisions.
That means your business plan, mortgage borrowing, rental profits, tax returns and, in some cases, even your salary and personal finances will all be taken into account. A new stress test also requires rental income of 125% of mortgage repayments and finances capable of covering costs if interest rates rise to 5.5%.
Why they matter more than you might think
According to Shawbrook Bank’s Broker Barometer survey, 28% of brokers said their clients were completely unaware of the changes and 61% believe landlords lack sufficient understanding. That’s a serious indictment from a group of financial experts with insight into how (and if) landlords can access funding.
Ignoring them could mean you struggle to find a lender, which could affect your growth plans, but also hurt your finances in the event of cash flow trouble – particularly as the added bureaucratic burden is likely to increase the time it takes mortgage providers to assess an application.
How they can hit any unprepared landlord
With such delays, and in the event of a mortgage deal expiring, even solvent landlords may find that they struggle with cash flow in the short term. It could therefore pay to spend some time getting your finances and cash flow systems in order.
Keeping up-to-date property portfolio spreadsheets with all the relevant data about rents, costs and values is an excellent start. On top of this, an up-to-date business plan looking at overall price trends and how you’re responding will back up your latest plans. Meanwhile, safeguards like enforcement plans to deal with unpaid rents will ensure you aren’t caught out if tenants withhold payments.
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