A new set of rules are being introduced by the Prudential Regulation Authority (PRA) with effect from 30th September this year, which govern the way lenders assess buy-to-let mortgage applications from landlords who own 4 or more mortgaged properties (portfolio landlords).
There is concern that many landlords are unaware of these changes and that they could cause a lot of problems for those seeking to raise mortgage finance after 1st October.
What changes are being made?
The PRA has stipulated that lenders must adopt a specialist approach when underwriting applications from portfolio landlords, who will be required to provide detailed information about their properties, business and income and expenditure.
In summary, the new rules state that portfolio landlords must provide the following:
• A schedule showing all the individual properties which make up their total portfolio and a summary of their experience as a landlord
• A statement of assets and liabilities, including future tax implications and all outstanding mortgage balances
• A cashflow forecast
• A business plan
Lenders have to assess a landlord’s total portfolio of properties and not just those against which they already have or are applying to have a mortgage.
Although this sounds onerous, it’s not terribly different to the procedures many lenders have been adopting for some time, so the level of disruption will probably be far less than many commentators have been predicting.
What will Saffron Building Society’s approach be?
The answer is that it will be almost identical to our existing approach!
• The minimum income coverage ratio we require on properties being financed is:
- Remortgages with no capital raising: rental cover of 125% of the pay rate.
- Remortgages with capital raising and a new BTL: rental cover of 140% of either the pay rate +2% or 5.5%, whichever is the higher.
- 5 Year fixed rates: rental cover of 140% of the pay rate
• All other BTL assets in the portfolio not financed by the society must meet rental cover of at least 125% of the pay rate, both individually and collectively.
• We’ll lend on up to 10 properties in aggregate, with a maximum exposure of £1.5 million to any individual.
• We’ll lend up to a maximum of 75% LTV on each property (which includes fees to be added)
All applications will be individually assessed by an underwriter and exceptions to the above will be considered on a case-by-case basis. This will be dependent on the borrower having alternative sources of income to support shortfall from operating cash flow.
At full mortgage application stage we will require four additional documents:
Business plan, cash flow forecast, property portfolio schedule and a statement of assets and liabilities, which can be found here: www.saffronforintermediaries.co.uk/other-documents/.
For further information
If you would like further information about the way in which we will treat applications from portfolio landlords, please feel free to speak to our Business Development Managers who will be happy to help:
Debby Tedder – 01799 582925
Holly Andrews – 01799 582885
Lewis Wheeler – 01799 582894
We look forward to being able to help you and your portfolio landlord clients.
Head of Mortgage Sales