Consumer group Which? is warning that buy to let investors with multiple properties in one locality could risk being turned down for future mortgages under the restricted guidelines being introduced in two weeks’ time.
The new Prudential Regulation Authority guidelines to mortgage lenders apply to those borrowers with four or more buy to let properties anywhere.
In future such borrowers – the PRA calls them ‘portfolio landlords’ – will have to show full financial information for every property in their portfolio, rather than simply providing top-line profits.
“This means that, among other factors, lenders will look at the equity in each property, individual rental profits and the geographical spread of your portfolio. The changes could make borrowing additional funds more time consuming, especially for large portfolios – imagine having to assess fifty properties individually. It could also result in some landlords getting turned down for finance, especially if they are heavily mortgaged or overly invested in a specific local market” says Which?
There is growing concern over the implementation of the new guidelines; individual lenders have been allowed to interpret the requirements on their own and the Mortgages for Business chief executive, David Whittaker, has warned that the industry could face a “car crash” if lenders are not prepared.
The changes aim to ensure borrowers are not over-exposed if economic conditions deteriorate. They build on ‘stress tests’ recently introduced by lenders who now demand rental income to meet at least 125 per cent of mortgage costs, and who check that borrowers can still repay the loan regularly even if interest rates soar to 5.5 per cent.
Portfolio landlords have been targeted because the PRA has found that arrears rates increase as portfolio size increases. The consequence is likely to be the same for this category of investor as the 2015 Mortgage Market Review was for owner-occupiers – mortgages will become tougher to secure for those who are ill-prepared. Which? is warning that buy to let investors with multiple properties in one locality could risk being turned down for future mortgages under the restricted guidelines being introduced in two weeks’ time.