New rules being introduced from 30 September 2017 are set to cause more headaches for landlords.
Under the Bank of England's Prudential Regulation Authority (PRA), landlords with four or more mortgaged properties in their portfolio will be obliged to provide income and mortgage details on all of them every time they refinance or purchase a new property.
Currently most BTL lenders assess a buy-to-let mortgage application based on the rental income and value of the property they are lending against. Under the new rules, however, if a lender has to review a portfolio of, say eight mortgaged buy-to-let properties in order to offer a mortgage on one single property, the lender will have to obtain evidence of the rental income and mortgages on all eight properties. This will draw out the underwriting and decision-making process, costing lenders more time and resources.
Apart from the headache this will also cause for landlords in getting all this information together each time they want to finance or invest, there are fears that buy to let mortgages will become more expensive:
- with some lenders withdrawing entirely from the BTL mortgage, making the sector less competitive; and
- those lenders that remain charging more interest on BTL mortgages to cover the extra underwriting costs.
Rental income requirements are also being toughened up to ensure the economy remains stable.
This legislation follows on from a number of changes for landlords that have been announced recently, including the tax relief on mortgage interest being capped at 20%; the recent removal of the wear and tear allowance; and the introduction of a 3% stamp duty land tax surcharge.
A press statement from the PRA says: “The PRA’s actions are intended to bring all lenders up to prevailing market standards and guard against any slipping of underwriting standards during a period in which firms’ growth plans could be challenged by the changing economic landscape and the impact of forthcoming tax changes.”