Landlords could soon face an administrative nightmare to get a buy-to-let mortgage as new regulations are set to come into force.
The new buy-to-let rules from the Bank of England will apply from October 1 and will demand a tougher stance from lenders assessing landlords who own four or more buy-to-lets.
From this date, landlords applying for a buy-to-let mortgage will have to provide information to the lender on every single property in their portfolio – even if the mortgage application is for just one of them.
Over the past few weeks, lenders have started to confirm how they intend to cope with these ‘portfolio landlords’ – with most requiring borrowers to provide detailed information on every mortgaged property they own.
To help you prepare, we’ve rounded up the changes and explain what you need to know to navigate the maze.
What are the new rules?
The rules apply to ‘portfolio landlords’ which the Bank of England defines as buy-to-let landlords who own four or more properties with a buy-to-let mortgage on them.
The rules apply both to landlords who own properties in their own names, and to landlords whose portfolios are held in a limited company structure.
From 1 October 2017, when you apply for a mortgage on any one of your buy-to-lets, if you are a portfolio landlord you’ll need to provide financial information on every property in your portfolio to the lender.
They will then assess whether you are a good prospect for a loan based on how much equity you have in all your properties, all your rental income and the concentration of properties you might have in one location among various other factors.
It is likely to cause a huge amount of admin for landlords when they first refinance or purchase a new buy-to-let after this date.
Lenders are also likely to take longer to process buy-to-let applications until they get used to the new rules and systems.
It may also mean that some landlords are turned down for new finance because they don’t have enough equity in their whole portfolio.
Why do we need them?
The Bank of England and government have been worried about the buy-to-let sector getting out of hand for several years now.
While the previous government brought in various tax changes to make buy-to-let less attractive for landlords, the Bank of England has introduced tougher capital rules on the banks that lend buy-to-let mortgages.
Their motivations are different: the government play is designed to help free up homes for first-time buyers; the Bank of England is concerned about the systemic risk that a large buy-to-let sector poses to the wider economy.
Landlords believe that together, these changes have put enormous financial pressure on the buy-to-let sector, with some forced to sell some of their properties and raise rents to maintain profits.
What do I need to do if I am a portfolio landlord?
Nothing until you need a new buy-to-let mortgage or you want to remortgage one of your existing properties.
Every lender has decided to deal with the new rules slightly differently, meaning if you remortgage one property with TMW you’ll need one set of information and if you remortgage another two weeks later with BM Solutions, you’ll need a different set of information.
In general, you should have the following information handy in any case:
1. Lenders will value every property in the portfolio, so you’ll need to submit all of their addresses and provide proof of ownership.
2. They will want to know the value of all your outstanding mortgages, so account details for all of these as well as the lender that holds them will be needed.
3. Bank statements will be needed showing rental payments from every property, to cross check the rental income ratio and your mortgage payments.
4. Tenancy contracts provide further evidence of rental income.
5. Tax returns that provide evidence of any other income sources and / or company accounts.
6. Business plans and cash flow forecasts are also required.
Some lenders will need more than this, others less. Most buy-to-let mortgages are arranged through mortgage brokers, meaning they are likely to deal with a lot of the hassle of keying this information into lenders’ systems for you.
That said, brokers aren’t geared up to submit information on 60 properties for one application – so there is going to be a delay.
Chris Longhurst, of mortgage broker Mortgages for Business, said: ‘If there is one message to offer at this stage it is that every application form will need to be both accurate and fully completed. Early indications are that the information provided will be thoroughly analysed.’
He added: ‘The more accurate we can make the initial approach to the lender the better the likely outcome but do be prepared for delays whilst all this additional information is being processed.
‘I suspect the services of a knowledgeable broker will never be more welcome.’
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