Phase 2 Mortgage Regulations and your Buy-to-Let Properties
New mortgage regulations from the Bank of England (BoE) will become effective from 30th September 2017. These new regulations will, in many cases, have a big impact on landlords with more than three mortgaged buy-to-let properties as they will be required to provide more detailed information regarding their existing rental properties, other assets, their liabilities, income and costs.
What exactly are the new rules?
Last September the Prudential Regulation Authority (PRA) published ‘Underwriting standards for buy-to-let mortgage contracts’ after a period of consultation. The rules published were:
- Lender should assume a minimum borrower interest rate of 5.5% for the first 5 years of the loan
- The exception to this will be if the interest rate is fixed for more than 5 years or if the overall mortgage contract is less than 5 years.
- There will be no link between the 5.5% interest rate figure and the BoE base rate.
- Rent rises will be taken into account in affordability checks.
- A landlord with 3 or more properties should be treated as a ‘portfolio landlord’. Lending to a portfolio landlord should be treated as more complex due to amount of debt in aggregate, cash flow and the costs arising from multiple tenancies and the associated risks.
- As a result portfolio landlords may be expected to provide additional information so the underwriter can take into consideration:
- the borrowers experience in the buy-to-let market
- their full portfolio of properties and outstanding mortgages
- the borrowers assets and liabilities including any tax liability
- the merits of any new lending in the context of the borrowers existing buy-to-let portfolio together with their business plan and historical and future expected cash flows associated with all of the borrowers properties.
To read the report in full please click here.
What do the rules mean for you?
When Phase 2 of the new BoE underwriting requirements goes live this September one of the biggest changes buy-to-let landlords will face is the way in which lenders will calculate the loan amount.
Previously they would have focused on the rental income and value of the property they are lending against. However, once Phase 2 comes into effect, landlords with more than 3 buy-to-let properties will need to provide details of all properties that the landlord has an interest in, this will include property values, rental income, costs and mortgages.
Some lenders already ask for this information though many do not. It is expected that the industry will adapt quickly to these new regulations although due to the increase in information required we are expecting the process to take longer than it would have previously taken.
If you would like more information regarding the Phase 2 changes and how they will affect you then please do not hesitate to get in touch with us.