Personal/Limited Company Buy to Let Mortgages – PRA 2 Changes to Portfolio Landlords From September 2017
From the 30th September 2017, the Prudential Regulation Authority (PRA) will introduce stricter underwriting of buy to let mortgages. This is in addition to the underwriting changes introduced on the 1st January 2017 regarding increased rental coverage.
In this article, I will explain what the planned changes are and which landlords will be impacted by its implementation.
What is a Portfolio Landlord According to the PRA?
Borrowers with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate. The important point here is that only mortgaged buy to let properties are included in the total.
Which Landlords Will it Affect?
It will apply to all landlords increasing their portfolio above three mortgaged properties either in a personal name or via a limited company/SPV.
Existing Portfolio Landlords re-mortgaging for a more competitive rate without capital raising should not be affected by the new criteria.
What if I Own Mortgaged Buy To Lets In My Personal Name and Via a Limited Company/SPV (Special Purpose Vehicle)?
All mortgaged properties will be included.
Why Is This Increased Underwriting Being Introduced?
In the past, lenders underwrote each buy to let mortgage application in isolation. The PRA now want lenders to take into account the full financial circumstances of Portfolio Landlords and the impact any new lending will have on their finances.
An existing rental property with little equity and low rental coverage may affect your ability to finance further buy to lets. Accord will require rental coverage of 135% at 5% on all existing properties to match their criteria from September 2017.
What Information Will Portfolio Landlords Have to Supply?
Lenders will expect a minimum information per buy to let property of:
- Lender’s name/account number
- Address of property
- Current property value
- Mortgage outstanding
- Monthly mortgage payment
- Rent received
- Evidence of last three months mortgage payments and rent received by supplying bank statements
Possible additional information:
- How long have you been letting property?
- Do you manage the properties personally or via a letting agency?
- Is property currently let?
- Start date of agreement and length of agreement?
- Current interest rate and when product expires?
- Last three years SA302s and matching tax overviews
- Asset and liability statement
- Cash flow details
- Forward-looking business plan
What Does All This Mean?
What this means in practice is that landlords will have to set up at least a spreadsheet supplying this information, that is updated to reflect the changes in their portfolio. All lenders from the 30th September 2017 will insist upon this information on application.
Paragon have now introduced this requirement from the 17th July 2017. Other lenders are expected to implement criteria shortly.
At the moment we search the most competitive rate/fees when researching for a new mortgage.
When applying for a mortgage under the new rules, the rental coverage of the existing portfolio will impact on the choice of the new lender.
Why Use Neil Soundy Financial Services For Your Mortgage Advice?
- We are experts in SPV / Ltd Co lending.
- Your initial consultation is free with no obligation
How Much Will It Cost Me For Your Advice?
A fee of £495 is payable on completion of the mortgage and Neil Soundy Financial Services Ltd will keep the commission received from the lender for arranging the mortgage.
Neil Soundy Financial Services Ltd is an appointed representative of HL Partnership Ltd which is authorised and regulated by the Financial Services Authority.
The Financial Conduct Authority does not regulate some forms of buy-to-lets.
We do not give or imply legal or taxation advice. We recommend you contact a solicitor or accountant for advice in these areas.
Think carefully before securing other debts against your home/property. Your home/property may be repossessed if you do not keep up repayments on your mortgage.
