BTL mortgages - all change please!

So, you’re pushing the thoughts of rent caps, section 24, stamp duty, capital gains – all that bad stuff to the back of your head, and you’re going for it! You’re applying for a mortgage to add to your portfolio of rental properties! Congratulations!

However, there is one more slight spanner to throw in the works…

As of Sunday, October 1st, the way portfolio landlords’ mortgage applications is changing, which could make getting your mortgage signed off a little more complex.

Additional regulations are being introduced by the Prudential Regulation Authority, which will impact anyone applying for a mortgage who own four or more buy to let properties – a ‘portfolio landlord.’

The legislation has been designed to manage concern around interest rates. Lenders are nervous that should rates suddenly shot up (this seems inevitable) there are many portfolio landlords out there who will find themselves overly heavily geared, and unable to meet the repayments on their numerous mortgages.

The worry is that if a portfolio landlord over-commits themselves, it is not only their investment at stake, but a number of tenants’ homes too – people who are in no way responsible for the inability to pay the mortgage.

In order to prevent this, the new regulation – which kick in on Sunday 1st October – will mean that lenders have to carry out more tangent affordability assessments on any portfolio landlords wanting to secure a new mortgage. Affordability criteria is being assessed working on interest rates hitting 5.5%, so be prepared to show you can afford your mortgage should they shoot up this high – a business plan might well be required here.

Historically, all you had to do was prove that the projected rental income would be enough to cover the mortgage, however now your income will also play a part, and you will have to provide details about all of your other properties too. Essentially, your portfolio is now viewed as one single entity, rather than individual properties operating their own profit and loss.

As long as your entire portfolio is operating at a profit, you should have no issues, but if you have one poor performer – be prepared for it to have an impact on your application. One property’s shortfall can no longer be carried by the rest of the team, lenders want to see every investment pulling its weight.

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