Buy-to-let squeeze continues
Taken form This is Money
Buy-to-let squeeze continues: Landlords with multiple properties are warned of mortgage headache when new rules bite in 2017
Landlords with four or more buy-to-let mortgages have been warned to prepare for a major headache when new rules next year force lenders into tougher lending assessments.
From 30 September 2017, rules laid out by the Bank of England's Prudential Regulation Authority mean any landlord who owns four or more mortgaged buy-to-let properties will have to submit income and mortgage details on all of them every time they refinance one, or purchase a new property.
It means that the volume of work for lenders will increase massively, and one expert has warned it could mean some lenders stop lending to such landlords altogether.
Currently most lenders assess a buy-to-let mortgage application based on the rental income and property value of the property they are lending against.
But under the new rules if a lender has to review a portfolio of 10 mortgaged buy-to-let properties in order to offer a mortgage on a single property it will have to obtain evidence of the rental income and mortgages on all 10 properties.
Some buy-to-let lenders already place restrictions on the number of buy-to-let mortgages you can have with them - usually allowing a maximum of three or four, or total borrowing of £1million to £2million.
But they don't necessarily take into account whether you have buy-to-let mortgages with another lender.
Ray Boulger, of mortgage broker John Charcol, said: 'Many lenders will find the significantly enhanced underwriting process uneconomic.
'Although these new rules don’t come into force until this time next year, most lenders are likely to introduce them before that date. That is likely to result in many lenders withdrawing from the market.'
The PRA rules are intended to make sure that in future lenders look at landlords' full financial exposure when assessing them for a mortgage - in the hope that riskier lending is avoided.
But more underwriting will push up costs for lenders - and consequently for landlords in this bracket. Mortgages for these so-called portfolio landlords are therefore likely to get more expensive over the coming 12 months and there are likely to be fewer options available.
Boulger is also concerned that landlords' mortgage costs won't just go up at individual product levels because of the rules, but also that overall costs will rise because landlords won't be able to mix and match lenders across their portfolio.
'Although there are a few lenders whose target market is portfolio landlords, and consequently their underwriting and pricing reflects that, in most cases we can find better mortgage value for clients by spreading their borrowing between different lenders,' said Boulger.
'Not only is the lender with the best five-year fix likely to be different from the one with the best variable rate, or two-year fix, or 10-year fix, but also different underwriting criteria means that a borrower may qualify for a mortgage with a lender on one property but not another.
'Matching the client, property and loan-to-value required with the right lender for each property can make a significant difference to overall borrowing costs,' he said.
It comes just when landlords are already suffering from a barrage of rule changes affecting how they structure their investments.
From April 2017 landlords who own buy-to-lets in their own name will see tax relief on mortgage interest tapered back from a maximum of 45 per cent and replaced with a flat 20 per cent tax credit by 2020.
Together with the recent removal of the wear and tear allowance and the introduction of a 3 per cent stamp duty surcharge in April this year, these changes could make it more financially viable to own buy-to-let in a limited company.
The new mortgage rules, part of set of measures laid out in September by the PRA which also toughen up rental income requirements, apply both to landlords who own properties in their own names and to landlords who own through a limited company.
The PRA believes the rules are necessary to ensure the economy remains stable.
It said: 'Arrears rates increase as portfolio size increases. The PRA considered the impact that the personal tax changes would have on landlords, and particularly those landlords using their personal income to supplement the rent.
'For portfolio landlords, who are not set up as limited companies, this additional tax burden will be considerable and so a portfolio view becomes even more relevant for new borrowing.'
Taken form This is Money
Buy-to-let squeeze continues: Landlords with multiple properties are warned of mortgage headache when new rules bite in 2017
Landlords with four or more buy-to-let mortgages have been warned to prepare for a major headache when new rules next year force lenders into tougher lending assessments.
From 30 September 2017, rules laid out by the Bank of England's Prudential Regulation Authority mean any landlord who owns four or more mortgaged buy-to-let properties will have to submit income and mortgage details on all of them every time they refinance one, or purchase a new property.
It means that the volume of work for lenders will increase massively, and one expert has warned it could mean some lenders stop lending to such landlords altogether.
Currently most lenders assess a buy-to-let mortgage application based on the rental income and property value of the property they are lending against.
But under the new rules if a lender has to review a portfolio of 10 mortgaged buy-to-let properties in order to offer a mortgage on a single property it will have to obtain evidence of the rental income and mortgages on all 10 properties.
Some buy-to-let lenders already place restrictions on the number of buy-to-let mortgages you can have with them - usually allowing a maximum of three or four, or total borrowing of £1million to £2million.
But they don't necessarily take into account whether you have buy-to-let mortgages with another lender.
Ray Boulger, of mortgage broker John Charcol, said: 'Many lenders will find the significantly enhanced underwriting process uneconomic.
'Although these new rules don’t come into force until this time next year, most lenders are likely to introduce them before that date. That is likely to result in many lenders withdrawing from the market.'
The PRA rules are intended to make sure that in future lenders look at landlords' full financial exposure when assessing them for a mortgage - in the hope that riskier lending is avoided.
But more underwriting will push up costs for lenders - and consequently for landlords in this bracket. Mortgages for these so-called portfolio landlords are therefore likely to get more expensive over the coming 12 months and there are likely to be fewer options available.
Boulger is also concerned that landlords' mortgage costs won't just go up at individual product levels because of the rules, but also that overall costs will rise because landlords won't be able to mix and match lenders across their portfolio.
'Although there are a few lenders whose target market is portfolio landlords, and consequently their underwriting and pricing reflects that, in most cases we can find better mortgage value for clients by spreading their borrowing between different lenders,' said Boulger.
'Not only is the lender with the best five-year fix likely to be different from the one with the best variable rate, or two-year fix, or 10-year fix, but also different underwriting criteria means that a borrower may qualify for a mortgage with a lender on one property but not another.
'Matching the client, property and loan-to-value required with the right lender for each property can make a significant difference to overall borrowing costs,' he said.
It comes just when landlords are already suffering from a barrage of rule changes affecting how they structure their investments.
From April 2017 landlords who own buy-to-lets in their own name will see tax relief on mortgage interest tapered back from a maximum of 45 per cent and replaced with a flat 20 per cent tax credit by 2020.
Together with the recent removal of the wear and tear allowance and the introduction of a 3 per cent stamp duty surcharge in April this year, these changes could make it more financially viable to own buy-to-let in a limited company.
The new mortgage rules, part of set of measures laid out in September by the PRA which also toughen up rental income requirements, apply both to landlords who own properties in their own names and to landlords who own through a limited company.
The PRA believes the rules are necessary to ensure the economy remains stable.
It said: 'Arrears rates increase as portfolio size increases. The PRA considered the impact that the personal tax changes would have on landlords, and particularly those landlords using their personal income to supplement the rent.
'For portfolio landlords, who are not set up as limited companies, this additional tax burden will be considerable and so a portfolio view becomes even more relevant for new borrowing.'
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