Landlords face tough new borrowing rules from September
Landlords are gearing up for yet another assault as the Bank of England prepares to impose more rules on BTL investors.
From September, the Prudential Regulation Authority will start to enforce stricter standards for landlords with four or more mortgaged properties.
For the first time, lenders may be forced to look at a landlord’s entire portfolio when they decide what mortgage deal they can offer on a single property.
Lenders have flexibility in interpreting the new rules but must request more paperwork from brokers, including in-depth details around landlords’ business plans, cashflow forecasts as well as the other mortgages and properties within the portfolio, including things like interest coverage ratios and loan-to-values.
Brokers are urging borrowers to arrange new deals before the rules come into force on September 30. Landlords could also find the amount they can borrow restricted if they fail a “stress test”.
The PRA rules state that lenders: “should assess any rental income by taking into account rental demand at typical rent levels in the property’s locale.
"Expected rental income should be verified by a suitably qualified valuer who is independent of the borrower.
"Evidence of an existing rental agreement can be used subject to appropriate property controls and risk management.”
With the deadline fast approaching, few large lenders have provided details about their portfolio lending approach, giving brokers little time to react, and big delays are expected.
Mortgages for Business managing director David Whittaker says: “Do I think there is going to be a logjam in October and November? Absolutely.
“Collectively, lenders haven’t got their message out to the market about what their message will be on 1 October. This is not helpful. We have all collectively fiddled while Rome burns in the background.”
One Savings Bank sales and marketing director John Eastgate says: “The changes coming up will cause delays. The opportunities for brokers to have their heads spinning will be colossal.”
Delays will also occur as lenders and brokers adapt to the new paperwork required when the rules come in.
Whittaker added: “Brokers won’t be used to the documents they’ll be asked to provide, so may not get it right first time. Or underwriters will encounter documents they haven’t been trained for. At every level there will be unproductive conversations as people challenge what is asked for. There will be thousands and thousands and thousands of these conversations, and anyone who doesn’t think that is deluded.”