New rules for Buy to Let portfolio landlords from September

If you are a Buy to Let landlord and own more than four properties, then this could be of interest to you..

In September, the Prudential Regulation Authority (PRA’s) second round of regulation rules will impact the Buy to Let sector.  These requirements revolve around the ‘professional landlord’ and specifically anyone who owns more than four properties.  These follow the recently implemented phase one, which took place in January 2017, implementing more stringent rental calculations and affordability assessments.  The overall aim of the rules is 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.

So, what does this mean?  The new rules require lenders to assess applications using a specialist underwriting process, review and stress test the landlord’s whole portfolio, as well as the individual’s financial capability. This includes those held in a Limited Company name.  

Lenders will be required to make sure you are not over exposed and any decision to lend will be made once the whole portfolio has been taken in to account.  Each lender will interpret the rules differently and, although still in July with launch just a couple of months away, many lenders have not yet confirmed how they will be looking to change things.

However, the murmurs across the market suggest that some lenders will look at all assets and liabilities, possibly even a business plan for the portfolio, any previous experience in property rental and both property rental and personal incomes.  This could also include budget forecasts.  As a standard, we expect to see the usual tax returns, three months bank statements and copies of all Assured Shorthold Tenancy agreements being requested. 

Therefore, if you are looking to change properties, buy further or reassess current portfolios, you might be wise to do it sooner, rather than after September.  Without a doubt, and as with any previous regulatory implementation, lenders turnaround times will be affected as new rules bed in and processes will become slower than usual, for a while at least.

Don't talk the market down, it's ticking over nicely!

There have been a number of comments made in the national press recently regarding the market being in a lull and how mortgages are becoming harder to obtain.  I do think sometimes that people talk the market down, rather than reporting the actual situation.

As both a specialist mortgage provider, as well as whole of market (including the high street lenders), AToM has actually seen an increase in business recently rather than a drop in activity.  From talking to our peers we are aware that they are experiencing this growth too! 

We have also seen a number of  new lenders enter the market and there are others due to launch soon.  This would not be happening if any lender thought the market was in decline!

One lender, Masthaven Bank, launched recently in to the residential sector looking specifically to fill gaps in the specialist market.  These include allowing gifted deposits and equity, contractors, self employed - straight forward or complex, customers borrowing in to retirement and those who fail credit scores, to name just a few.  With rates starting from under 3%, this is a lender who is looking to lend and they should be applauded for such innovation and great launch products.

Other recent 'game changers' include Kensington Mortgages who cater for those with historic blips and with only a 10% deposit.  Precise Mortgages and Kent Reliance, who are both positively active in the Buy to Let sector, especially with regards to Houses of Multiple Occupation, Ltd Company BTLs and with new underwriting regimes on the horizon for Portfolio Landlords (those with more than 4 properties) and these are definitely ones to watch.  Tipton Building Society and Dudley Building Society for allowing lending in to retirement and above average income multiples. And there are so many others who I don't have space to mention!

So the bottom line is simple.  Just because the high street says no, or your mate down the pub says 'you'll never get a mortgage' because of your situation, find an experienced mortgages specialist who may be able to open up a door to a wide range of opportunities available to you.

Arranging a repayment vehicle for an Interest Only loan is not a job for ‘tomorrow’.

There has been increasing commentary recently regarding Interest Only and Repayment mortgages. With an Interest Only mortgage, you only pay interest and no capital and so, at the end of your chosen term, you still owe the lender the same amount as when you began. Normally with this method, it is recommended that you contribute to a savings or investment vehicle to generate funds to repay the mortgage at the end of the term. However, this is usually optional but the lender will maintain contact with you during the term to investigate how you will eventually repay them.

With a Repayment Mortgage, you pay both interest and capital each month. Initially, this appears more expensive, but does mean that you pay back the loan with no debt outstanding at the end of the term on the reasonable assumption that you meet the required payments on time. 

Why the recent attention to these repayment options?  Simply, because many borrowers who stepped onto the property ladder chose the cheaper monthly payment (interest only) promising to review their payment plans at a later date. The problem is that the ‘later date’ never seems to arrive! As we all know, people generally live within their means. Many borrowers on this scheme have no savings or viable plans to pay back the debt and this is worrying! 

For a customer to get to the end of their mortgage term still owing exactly the same as when they took it out, with no form of repaying the loan apart from selling their property, creates a major headache for the lender, especially when they want their money back!  This is also part of the reason why so many lenders have historically moved away from offering interest only all together.

In addition, most high street lenders will only lend until normal retirement age, so those looking to extend their loan beyond normal retirement age, may only find a small number of mortgage lender options.

That said, Interest Only mortgages can be right for certain professions - people entitled to annual bonuses: the fluctuating income of self employed: or employments where lump sums are received after a number of years in service. It is not an exact science however and every case is different.

Arranging a repayment vehicle for an Interest Only loan is not a job for ‘tomorrow’.  As we all know, tomorrow never comes.  So, do it now!  Sort out a plan of action and put it into motion. Speak to your current lender or mortgage broker and review the options available to help you achieve repaying the loan over a specific time period.  But don’t delay…the clock is ticking!

Stick with your current lender?

So, your mortgage product is coming to the end of it's term.  You may have fixed for an amount of time, maybe two, three or five years.  And now your rate is due to change to the lenders variable rate, which in the main, is higher than the rate you are currently on, and your monthly payments are about to increase.  But hold on, your current lender has seen the light and decided to offer you some 'fantastic' products to keep you.  Even though you are four months out of your product change, they've given you just fourteen days to decide whether to choose a new product to stay with them.  What do you do?

One recent example a customer showed us, had some very attractive rates.  However, when we looked, the same lender was offering better rates through the intermediary sector, with the same fees, etc.  I always say do your homework, and lucky this customer did as it saved them 0.1% on the rate over a three year period.

Even though some lenders put a deadline on any new offerings, remember most are contacting you three or four months before your product changes, so there is plenty of time to review your options and choose the best one for you. 

This is the biggest debt you will ever take on, take your time and ensure you will not regret it further down the line.  Always seek advice! 

With this in mind, we've seen a lot of rate changes and reductions over the last few days.  TSB, Santander, Halifax, Harpenden Building Society, Accord, Platform, Saffron, Kensington, Virgin Money and Precise Mortgages have all made changes, to name but a few.  Key highlights include 5 year fixed rates from 1.75% up to 65% LTV, Buy to Let fixed rates from 2.99%, ExPats in Australia can now be First Time Buyers in the UK, more options for lending in to retirement and many many more positive enhancements.    Lenders want to lend!