New landlord lending rules come into force

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This month the Prudential Regulation Authority (PRA), which is part of the Bank of England (BoE), will start to enforce tougher lending standards on landlords with four or more mortgaged buy-to-let properties.

The rules will come into force from 30 September 2017, but some lenders are applying the new rules from today.

The PRA announced the changes to the way mortgage applications are underwritten for landlords with four or more mortgaged buy-to-let properties last year.  Any borrower that falls into the portfolio landlord category will be assessed using a specialist underwriting process.

Under the new guidelines the PRA expects lenders to take a landlord’s experience, their full portfolio, their rental income, any outstanding mortgages and their assets and liabilities into account.

The have made these changes after a review of the buy-to-let market found that mortgage arrears rates increase as landlords’ portfolio sizes grow.

London estate agent Portico’s regional director, Mark Lawrinson said: “Under the new rules, if you want to make an application for a buy-to-let-mortgage on a new rental property, the lender will have to look at your entire property portfolio when they decide what mortgage deal they can offer on a single property. 

“For example, if you have six properties and four are generating enough rental income to cover mortgage payments and then some, but the other two are not, your new mortgage application may not be approved by some lenders.

As of 30th September, lenders will also require a full breakdown of rental properties, a business plan, and cash flow projection to support a new application.”

He added that as a result of the new changes there may be a surge of rental properties come back on the marker as landlords off load their least profitable properties.

He warned that the new rules “could also have a knock-on effect on rental prices, as landlords look to cover any shortfalls or carry out works to a property to both increase the capital value and the rent, in turn improving the yield and the return.”

Mortgage experts, Capricorn financial, believe that some lenders are likely to withdraw from this arena as a result of the new rules.

“Santander have already indicated they will not lend to portfolio landlords for purchases or additional borrowing, while others have improved their offering through brokers – NatWest, for example, have gone from a maximum of four properties to 10,” they said.

“The new lending changes come on top of the tighter stress tests which came into place in January this year.”