So some more changes ahead for landlords even if you haven’t been battered enough by the changes in stamp duty last year and the changes in income tax. The PRA (Prudential Regulation Authority), a body within the BofE, have begun to implement more changes that have started on the 1st of October 2017.
These changes have occurred due to arising concerns from the PRA. The assumption is when interest rates eventually start to rise, landlords who have over-committed themselves to their mortgages may fall into payment difficulties due to the interest hike. With such changes to Buy-to-Let mortgages, it is expected that the effects it holds will bring a host of issues for those interested in investing or taking out a Buy-to-Let mortgage.
Mortgage brokers are now beginning to face a more stringent set of underwriting rules that are more complex when aiding clients to procure a Buy-to-Let property. So it is essential that brokers will need to undergo a thorough evaluation of their clients to know more than they perhaps do to fulfil the conditions of the new changes implemented by the PRA to Buy-to-Lets. But it has been stated that these new rules will only kick in if a clients possess three properties or are procuring into their fourth buy-to-let property.
The new rules consist of stricter affordability tests, such as ensuring the interest cover ratio including the impact of recent tax changes, and a stress test on interest rate rises. As a result, it has become much harder for some potential borrowers to get funding for Buy-to-Lets.
The PRA (Prudential Regulation Authority) are insisting the lenders now view any landlord with four or more mortgage Buy-to-Let properties as a portfolio landlord. So if you are one of these portfolio landlords and are wanting to buy a new property, you can expect some more stringent checks on your buy-to-let mortgage applications. So previously, you essentially had to pass a credit score and ensure that the rental income would be enough to cover the mortgage, sometimes by a certain percentage. Now the bank will be obliged to check not just that property but also the other properties within your portfolio to make sure that the rents on those properties also cover their mortgage payments. So it’s just going to take a longer period to achieve a mortgage offer; because you’re going to have to have documentation to prove that your portfolio sustainable going forward. This is to put a curb on landlords over-committing themselves on buy-to-let properties, but many landlords are beginning to set up limited companies for their future purchase to avoid these new rules to become more tax efficient and maintain profits.
Private landlords are the only one directly affected by these changes but not to those who own properties through limited companies. Your home may be repossessed if you do not keep up repayments on your mortgage.