The Prudential Regulation Authority (PRA) has made changes to the way in which buy to let mortgage applications are underwritten for professional portfolio landlords.
These changes came into force on the 30th September 2017 and have now been implemented by all bank lenders.
Here’s a summary of how they’ll affect Buy-to-Let mortgage applications:
According to the PRA, portfolio landlords are those with 4 or more mortgaged investment properties. Note that they count the number of individual properties, not the number of mortgages. Therefore a landlord that has one mortgage secured on four separate properties will still be classified as a portfolio landlord.
How will this impact your ability to raise finance on your portfolio?
Portfolio landlords will need to provide more information focussing on their experience as a professional landlord, their portfolio, and the forecast cash flows.
Lenders will perform careful due diligence to ensure the information provided meets the new criteria.
Lenders will need to make sure you are not over-exposed and as such will look to stress test your entire portfolio when making a lending decision – not just the specific part of the portfolio which you may require funding on.
Most lenders have now adopted new rental calculation rules. The way lenders have adapted the new PRA rules varies. Borrowing via a limited company will allow you to borrower at a higher LTV. Typical debt service coverage ratio (DSCR) for portfolio landlords borrowing via a limited company will be 125% based on a stressed interest rate of 5.5%.
How to prepare now
If you are considering the purchase of a new portfolio, or the refinance of an existing portfolio, then preparation is key.
Ensure that your portfolio spreadsheet is up-to-date, market values are as accurate as possible, mortgage balances are updated, and rental incomes reflect the current ASTs.
Be prepared for the information requests the lender will have, before they ask for them. As above, a correct portfolio spreadsheet is a great first step. Other documents will also be required, including personal and business bank statements, AST’s, explanations for any CCJ’s, tax returns, and an overview of the operating costs of the portfolio.
How Vision Finance can help
Vision Finance is a leading London-based advisory house specialising in portfolio financing (and refinancing). We work with a large number of property investors across the UK who have large and expanding portfolios – residential, commercial, and mixed use. Our client’s requirement for new lenders, competitive pricing, attractive terms, and often high LTV’s is continuous, and as such we work with every active lender in this niche space.
Please speak to one of our portfolio finance advisors on 0207 206 2500 if you would like to discuss these changes in more detail, or to discuss your specific portfolio BTL finance requirement. Alternatively, please e-mail the Investment Team.