A lot has been written about the new Buy To Let lending rules that will come into force as of the end of this month, with many suggesting that there will be a ‘Buy To Let Meltdown’ as a result.
But the truth is actually quite different as, for many landlords, the new lending legislation will not apply at all.
The latest changes are specifically aimed at what the Prudential Regulation Authority – the body governing Buy To Let lending – terms as ‘portfolio investors’ e.g. those who have four or more investment properties that are mortgaged. From the end of this month, this particular set borrowers will need to comply with portfolio landlord lending standards.
As an example, if you’re a landlord and currently have three Buy To Let properties which are all mortgaged and you decide you’d like to buy another one and so require an additional Buy To Let mortgage, from the 30th September the new lending criteria will apply to you.
Similarly, if you are a landlord with six properties in your portfolio, of which four are mortgaged and two aren’t but you’re refinancing a property that currently has an existing mortgage, then the rules would apply to you too.
This means that ‘Accidental Landlords’, those people who only have one property that they are perhaps letting out due to a change in their circumstances, or smaller landlords with two or three properties with mortgages (regardless of value) won’t be affected by the new lending legislation.
But for those who are considered ‘portfolio landlords’, what do the new rules actually mean?
In basic terms, the way that Lenders will assess affordability and risk will change, so as from 30th September Landlords with four or more properties will be required to evidence that their other mortgaged properties won’t be affected by taking on more Buy To Let borrowing.
This means that the income from their entire portfolio and other sources will be assessed to ensure that it will cover voids and the cost of maintenance.
This ‘holistic’ view is intended to ensure that by taking on additional borrowing, the landlord won’t jeopardise the rest of their portfolio and that they can afford to pay all their other mortgages.
Lenders will also apply an Income Coverage Ratio (ICR) across the whole portfolio, which will vary between lenders and is also dependent upon the number of mortgaged properties and in some cases, the landlord’s level of earned income.
Brian Murphy, Head of Lending for Mortgage Advice…