Our adviser Patrick Goddard explores the new rules introduced by the Prudential Regulation Authority (PRA) in January 2017 which will potentially make obtaining buy to let mortgage finance more difficult.
Buy to let mortgage customers face tougher criteria as lenders adapt to these new regulations.
With additional new rules on lending coming into effect investors may not be able to borrow as much against the total value of a property.
The changes have come about at a time when mortgage interest rates are low hence the affordability assessment factors in future interest rate rises.
Lenders will now be required to use an ‘Income Coverage Ratio’ test (ICR) which looks at the total personal income including any rental income and whether it will meet the mortgage repayments.
If personal income is not to be taken into consideration, then the incoming rent will be required to cover 125% of the outgoings based on a minimum of 5.5% interest rate.
Equity in the property will not be considered in the affordability assessment.
However if a landlord has money in savings this can be used as a measure of income.
Lenders can now allow for a rise in rental income of up to 2% a year when deciding whether a landlord will be able to afford a property.
Terms of less than 5 years or fixed rates of 5 years or more will not be subject to the affordability stress test.
By 30th September 2017 the PRA expect lenders to employ specialist underwriting in respect of ‘Portfolio Landlords’. These measures go beyond the standard requirements in recognition of the more complex nature of this lending.
‘Portfolio Landlords’ are considered to be anyone with more than 4 buy to let properties.
Remortgages which are of the same value will not be affected by the changes and with remortgaging lenders can exclude the arrangement fees, professional fees and administration costs when determining the amount of borrowing.
What this all means is that anybody who already owns buy to let property with finance or is thinking about purchasing a buy to let should seek advice with regard to mortgage funding.
In particular those individuals with more than 4 properties should consider their current and future needs and it may be sensible to take advice well before the September deadline.
If you have any questions about getting a buy to let mortgage or if your is coming to the end of its term call the office on 01752 837950.