As of 1 October 2017, new Bank of England rules are in force which affect any landlords with four properties or more that wish to apply for a new buy-to-let mortgage, or to refinance an existing property.
Due to concerns about the systemic risk that a large buy-to-let sector could pose to the wider economy, the Bank of England has introduced tougher capital rules on high street banks and lenders providing buy-to-let mortgages – meaning that landlords applying for such loans now face a greater administrative burden.
The new rules will affect anyone who can be defined as a ‘portfolio landlord’ – which the Bank of England describes as a buy-to-let landlord who has four or more mortgaged properties.
Such investors will now be expected to prepare and provide extensive financial information on every property in their portfolio before a lender can assess their eligibility for a new mortgage.
The idea is that mortgage lenders will then use this information to determine the following, and more, before deciding whether a landlord is a ‘good prospect’ for a loan:
- How much equity the investor has in each of their properties.
- The investor’s existing rental income.
- The values of each property in the landlord’s portfolio.
- The concentration of properties a landlord might have in one particular location.
Investors will need to provide proof of ownership, mortgage account details, cash flow forecasts, tenancy contracts, bank statements evidencing rental payments, amongst other things.
Both landlords who directly own properties in their own names and those whose portfolios are held in a limited company structure will be affected by the new rules.
The changes will mean that landlords will need to undertake a large amount of administration whenever they come to either refinance a current property or purchase a new buy-to-let investment with the aid of a mortgage.
The new rules also mean that buy-to-let mortgage applications will take longer to process, as lenders and landlords alike get to grips with the new regulations.
The changes might also mean that more landlords will be turned down for mortgages if they do not have enough equity in their whole portfolio.