Landlords with four or more mortgaged buy-to-let properties can now expect greater scrutiny of their entire portfolio when trying to buy a new property.
Portfolio lending rules, issued by city regulator the Prudential Regulation Authority, came into effect at the end of September. They require lenders to look at all of a landlord’s properties when assessing mortgage applications, so that they can be certain they can afford any additional borrowing.
Impact on landlords
Some lenders have stepped away from lending to portfolio landlords as a result of the changes, as the rules mean a longer underwriting process.
Others won’t accept new applications for additional Buy-to-Let lending from portfolio landlords, but will permit remortgages, provided they are on a like-for-like basis.
The good news, however, is that many lenders will still offer buy-to-let mortgages to landlords who already own several properties, so there are still plenty of options available for those that meet the definition of a portfolio landlord.
What to expect
Different lenders will have different approaches to portfolio landlords, so it’s important to seek advice if you’re not sure who is likely to be able to help, depending on your individual circumstances.
Landlords should expect more questions around their entire property holding, whichever bank or building society they choose. The lender will need to understand the existing mortgages in place, and the rental income each property generates. This will allow them to carry out an assessment of affordability across the portfolio, rather than an individual property, to ensure a borrower is not over-exposing themselves financially.
There are other rules which have recently come into effect which also affect landlords. Lenders must also impose a ‘stress test’ for the first five years of the loan, to check the mortgage will remain affordable if interest rates rise.
However, they may adopt a more flexible approach to those applying for a five-year fixed rate mortgage as if rates do increase during this period, the monthly payments won’t be affected.
Portfolio lending rules now in place