Whether your a landlord, mortgage broker, or just have an interest in the Buy to Let market, you will need to know about the planned Prudential Regulation Authority changes.
The new standards will be applied by 30th September 2017 and we have summarised below how they will affect Buy to Let mortgage applications.
The PRA regards those with 4 or more Buy to Let properties as ”portfolio landlords”. Note that this is based on the number of individual properties, not the number of mortgages. So if a landlord has 4 separate properties on one mortgage, they will still be classified as a portfolio landlord.
Portfolio landlords need to provide more information as lenders will need to apply a specialist underwriting approach. They may choose to evaluate:
- The landlords portfolio and experience.
- Assets & Liabilities, including future tax implications and outstanding mortgage balances.
- The landlords business plan
- Cash flow statements for the landlords properties.
Landlords information may be checked using credit bureau data to verify the total number of mortgaged properties.
Existing PRA rules will still apply, which means the interest coverage ratio is key to determining affordability for every application. However Buy to Let landlords using personal income will be subject to further affordability checks under the new standards.
As with Residential Mortgage applications, personal income and expenditure will also be assessed. This could include tax liability, living costs and essential expenditure, on-going credit commitments such as loans, vehicle finance, credit card debt, and any mortgages on other properties.
Rental Income Checks:
Lenders will need to evaluate rental income if it is used as part of personal income. Rental income will be validated by comparing typical rents in the area and local rental demand. Future expected rental income may also be checked by using existing rental agreements, valuation tools, or an independent valuer.
If you are a landlord looking for advice on any of the above, then please do not hesitate to contact Key today.