Other restrictions such as regulatory burdens on portfolio landlords will be implemented by 30 September 2017. £0 These new changes have come into effect for both new Buy to Let Purchases and for Capital Raising, however, the remortgaging of buy to let properties remain unaffected.
Indeed, other loans including Holiday lets, bridging loans, property investment lending and corporate lending are exempt from the underwriting standards as well.
Affordability Testing – £0The PRA has required lenders implement into their criteria an Interest Coverage Ratio Test (and/or) a personal income affordability test. £0 The lenders in such an affordability test must take into account any tax liability by the borrower as well.
Interest cover ratios are likely to rise to circa 145% from the historic 125% coverage which has been the norm for some time, but this may be different across different lenders. £0 The future interest rate test, in which the PRA prescribes that a lender must have a minimum test of 5.5% during the first five years of a buy-to-let mortgage may also be a stumbling block for some.
The affordability test must include a set of variables including income affordability test, all costs associated with renting a property, tax liability, income net of tax, national insurance payments, credit commitments, committed expenditure, essential expenditure and living costs. A Landlords £0personal affordability will hold more weight if you rely on personal income to support the rent.
The PRA does not expect it to drop further than 125% and a minimum rate of 5.5% and many lenders are currently above the current minimum (and expected minimums).
Portfolio Landlords – £0The PRA is to require from Lenders a special underwriting process for Landlords with four or more mortgaged Buy to Let properties, because the PRA has found that arrears rates increase as portfolio size increases.
The PRA is not prescriptive in its approach here, but it does outline to lenders that they should take into consideration a Landlords Experience and record their full portfolio, rent and outstanding mortgages, which should be in addition to their assets and liabilities and tax liabilities. £0 Lenders should also take into consideration the merits of any new lending in accordance with the landlords business plan.
Portfolio Landlords may be in for a harder process on the next purchase later this year, since the specialist process will require a lot more information and may include as the PRA suggests, Cash Flow Forecasts, a Business Plan and Portfolio Spreadsheets. £0