New underwriting standards for the buy-to-let market have been introduced this week from the Prudential Regulatory Authority (PRA).
Landlords with four or more rental properties are now defined as portfolio or professional landlords and lenders will be required to fully underwrite the landlord, their entire portfolio and any alternative sources of income they have.
Fortunately, expert mortgage broker and member of the Platinum Property Partners’ power team, Bluechip Financial, have already been working closely with our network of landlords to ensure they are ready for the changes. As a result, Platinum franchisees will be equipped with the additional paperwork, including business plans, liabilities and cash flow statements, required for all new mortgage applications.
The changes follow increased stress testing and tighter buy-to-let lending criteria introduced earlier in the year and aim to standardise underwriting practices across the private rented sector while deterring over leveraging in the event of a rise in interest rates.
The impact could be longer application timescales and fewer successful applications if an overall buy-to-let portfolio is deemed to be poorly managed or producing unsatisfactory yields. The underwriting changes could also come as a surprise to many landlords as most lenders have not yet made their intentions public knowledge and so over exposed portfolios could be at risk from being refused further finance.
“This is another indication that the private rented sector is becoming more professional and streamlined,” said Lisa Stead, Head of Platinum Property Partners. “Thankfully, Platinum Property Partners have been taught how to run highly effective property investment businesses, so most of our landlords already have the paperwork in place and market-leading levels of rental income that would be hard pressed to fail any stress tests.”
It is not yet clear how each lender will interpret and apply the new PRA guidelines, but it is expected that each of them will take the following into account:
- Total amount of mortgage borrowing across the entire portfolio
- Total rental income across the entire portfolio
- Future portfolio growth schedule
- Additional income
- Tax liability
The new regulations will affect landlords who own properties in individual names and within limited companies.