In the last year or two, we’ve seen a big increase in the number of new rules, regulations and guidelines impacting on the buy-to-let industry. From the introduction of new stamp duty rates for second homes, to the increase on affordability checks on those applying for buy to let mortgages, the industry is already feeling the pinch.
However, in the last couple of weeks, another of the Government’s new rules regarding buy-to-let investments has come into force. Specifically affecting landlords with four or more properties, the new rules could mean a big headache next time you want to add to your portfolio or refinance a current investment property.
New lending rules for portfolio landlords
As of September 30th, landlords that own four or more rental properties will need work harder if they want to secure a mortgage for a further property or re-mortgage an existing tenanted home. Landlords will be required to supply financial information on all of the properties in their portfolio in order to ensure that each one is profitable. As @simplybusiness says:
“The lender will need to look at your entire property portfolio, meaning that one bad, non-profitable, apple could rot the whole barrel.”
Why are new regulations needed?
The new rules relating to portfolio landlords are part of a wider effort by the government to reduce high-risk lending and stabilise the UK housing market. Other recent changes introduced by the former Chancellor and pursued by the current team in charge include an increase in the amount of stamp duty paid by second homeowners and tough new affordability criteria for those applying for a loan.
How the changes will affect portfolio landlords
With these new regulations now in force, it is up to each individual lender to decide exactly how they’re going to interpret them. For example, if a landlord has ten rental properties, nine of which are profitable, it will be up to the lender to decide whether the tenth, unprofitable investment will prevent a mortgage offer being made.
When assessing a portfolio, lenders will look at a number of factors. These could include cash flow across the portfolio, the landlord’s level of experience in buy to let, alternative sources of income and possibly even the location of the properties. This means that whenever landlords want to add to their portfolio, they’ll need to prepare detailed financial information on each property they own as well as on their rental business as a whole.
To find out more about the changes taking place in the housing market, or to speak to one of our expert advisors about your mortgage needs, contact us today.
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Written by: Andrew Page