BUY TO LET investment mortgage criteria will be changing as of the end of September this has many landlords worried with some predicting a buy-to-let catastrophe on the horizon.
As with all financial rule changes people tend to get over excited and assume the changes are for the worst, this not the case this time as, for the majority of landlords, the new lending legislation will not apply.
The Prudential Regulation Authority – is aiming the changes at what they describe as ‘portfolio investors’, buy-to-let landlords with four or more investment properties that have an existing mortgage, by the end of the month they must ensure they comply with portfolio landlord lending standards.
The new rule changes will not affect current mortgages only on new mortgages, for example if a landlord has three Buy To Let properties which are all mortgaged, and then applies for an additional Buy To Let investment mortgage, the new lending criteria will come into effect.
Investors with one property or landlords with two or three properties with mortgages need not worry this does not apply to you.
How will this effect ‘portfolio landlords’?
In layman terms lenders will change the way they calculate affordability and risk, portfolio landlords will need to show evidence that their other mortgaged properties won’t be affected by taking on more Buy To Let borrowing.
The rule changes will mean tougher checks and underwriting procedures.
Income obtained from the portfolio and other sources will be scrutinized to be certain that it will cover voids and the cost of maintenance, and that by taking further mortgages landlords won’t be risking the rest of their portfolio and can afford to pay all their other mortgages.
Income Coverage Ratio (ICR) will apply over the entire portfolio, ICR will vary amongst lenders.
Brian Murphy, Head of Lending for Mortgage Advice Bureau said, “Buy To Let mortgages have come under the scrutiny of the regulator in a variety of ways in the last twelve months or so. With these latest changes, what we are now seeing is stricter underwriting and affordability criteria coming into play.”
“The new rules will mean more stringent checks and underwriting procedures, which has meant that some of the smaller lenders have already said that as of the end of this month, they will no longer lend to portfolio investors with four properties or more.
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