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.

Buy to Lets are right for some and a good investment, over time

Buying a property for investment purposes is usually termed as a ‘Buy to Let’.  The property is normally let out on a six month assured shorthold tenancy (AST) agreement.  This is a very active market and many mortgage lenders offer buy to let mortgages to both experienced landlords as well as first timers.  

One such lender is BM Solutions.  Owned by the Lloyds Banking Group, BM Solutions has been at the forefront of the buy to let market for some years.  However, their appetite to lend appears to be increasing and this can only be good news for prospective borrowers.   They have recently altered their criteria and will now accept mortgage applications where landlords are letting their properties to students or tenants who are receiving benefits (including housing benefit, rent rebate or rent allowance).  Maximum number of people on an AST is five.  This is a good move and looking to assist a specific area of the Buy to Let market.

Rates in the Buy to Let sector are also quite competitive with 5 year fixed rates available in the mid 3%’s and some products offering free valuation and legal costs for remortgages.   For shorter term loans, the rates are lower.

As First Time Buyers struggle to raise deposits to climb onto the property ladder and some turn to, or continue to rent, the Buy to Let market should remain buoyant for some time yet.

Buy to Let properties will often provide a modest monthly return over and above the mortgage payment.  The additional amount can be used to supplement income, or, with flexible mortgages, can be used to “overpay” the mortgage and reduce the term.  Most lenders in this sector will require the rental income to exceed the mortgage payment by up to 25% and, after costs such as managing agents this should leave some spare cash to cover repairs, maintenance and landlords insurance.  It should also enable a fund to be established to cover the mortgage payment in the event that there is no tenant in situ for a while.   

Generally, Buy to Let should be considered as a long term investment.  That said, it is a popular sector of the market and can provide a source of income (after expenses) and capital appreciation over time. Remember though that the value of property can fall as well as rise and you will need to take this into account in your planning.