Last month the Prudential Regulation Authority (PRA) announced new minimum expectations for BTL underwriting standards. Adding to the recent tax changes these have been met with some controversy amongst lenders and industry thought leaders, but despite this the first phase of changes are set to take effect in January 2017.
BTL demand has been resilient thanks in part to private landlords moving their property investments into the shelter of a Special Purpose Vehicle (SPV). It is anticipated that these PRA changes will drive many more landlords down this path as corporate lending is exempt from the new standards. For assistance in identifying options for your client that may help with both the tax and PRA changes, email us at introducers@loan.co.uk.
What’s changing?
We’ve summarised the list of changes below. The stress test and affordability changes are due to take effect in January, followed by the changes for portfolio clients in September.
- Today most BTL mortgages require 125% rental coverage, and that is typically stress tested at a rate of 5%. From January all BTL mortgages that are covered by the PRA changes will be stress tested at 5.5% (independent of BoE base rate).
Note: Our specialist panel provides a broad range of products for both individual and company landlords that are available under today’s criteria. These include first charge products as well as BTL second mortgages, with rental coverages as low as 115% – and in some cases, where the applicant has alternative income, this can be taken into account to!
- Equity and future property prices can no longer be considered under the new standards.
- Lenders will be able to consider personal incomes when assessing affordability, subject to Income and expenditure.
- 4+ mortgaged properties will be considered a portfolio.
Subject to a tougher specialist process, as of September 2017 “portfolio” landlords may be asked to show experience in BTL and show current portfolio and mortgages. Required info from portfolio landlords is likely to include cash flow forecasts, business plan and portfolio spreadsheet.
Note: Our lending panel already includes a variety of specialist portfolio lenders and right now, we have access to highly flexible and competitive rates from 3.25% specifically for these clients.
Which products will these changes impact?
These changes will impact on all BTL mortgages. The PRA has clarified that holiday lets, bridging loans, property investment lending and corporate lending are all exempt from the new underwriting standards.
How does this effect my clients?
Clients looking to begin their journey into property management, or expand their current empire may be priced out of an already competitive market come January. Ensure you know what your BTL clients have planned so that you can help them maximize this brief window of opportunity. Also, looking head, be sure to continue to provide your BTL clients with the most up-to-date information to help them plan a successful future for their investments. Providing additional value such as this can be an incredibly valuable client retention activity.
We provide full support for all your BTL needs
Our regional business directors have years of experience with BTL mortgages and can help you and your clients navigate the recent and upcoming changes in this market. To arrange a training session on this topic for you and your colleagues please email us at introducers@loan.co.uk.
