Landlords are being urged to remortgage ahead of tougher buy-to-let lending criteria due to be introduced in September, which will make it more difficult to obtain finance.
The call arrives as the proportion of buy-to-let remortgage transactions as a share of the total lending market has risen over the last few months, and as a diminishing demand for new buy-to-let loans has driven many lenders to slash their mortgage rates.
The National Landlords Association (NLA) says that the rise in remortgages is due to landlords looking to limit their exposure to the new buy-to-let tax regime.
The forthcoming tightening of lending criteria for portfolio landlords is the latest in a series of attempts by the Bank of England’s Prudential Regulation Authority (PRA) to cool the buy-to-let market, following measures introduced earlier this year.
A guide to the PRA’s upcoming changes can be found here: https://www.justlandlords.co.uk/news/portfolio-landlord-underwriting-changes/
The NLA’s most recent Quarterly Landlord Panel shows that landlords are already finding it harder to arrange mortgages, with 43% saying that the process of obtaining finance has become more difficult since the beginning of the year.
Furthermore, more than half (53%) of landlords report that they have had to provide additional evidence to support recent mortgage applications, including tax returns, cash flow forecasts and business plans.
With just over a month before the second phase of the PRA’s underwriting standards is due (30th September 2017), the NLA is urging any landlords thinking about remortgaging not to wait any longer.
The Head of Policy at the NLA, Chris Norris, says: “Since the PRA regulations were introduced in January, the marketplace is looking considerably more complex. It was always likely that lenders would start to demand more evidence from applicants, and landlords are already feeling they have to go further to prove that they can afford finance.
“Changes to buy-to-let taxation will eat away at many landlords’ profits and make it more challenging for them to manage their businesses. As a result, many are looking to limit their exposure to the changes, which is why we’ve seen a rise in remortgaging.”
He adds: “However, the situation is due to worsen from September and, while it may not be financially advantageous for everyone, if you’re considering remortgaging or expanding your portfolio, then do so now to avoid any further difficulties”.
Jeff, who has been a landlord for 14 years and has seven properties in Lincolnshire, says it’s becoming harder to get finance, as lenders view him as high-risk.
He explains: “After the 2008 economic crash, my outstanding debt changed the way lenders viewed me and, now, I’m regularly either refused or charged higher rates if I want to take out finance.
“Lending regulations and policy need to be changed in order to incentivise investment in rented housing and return the market to a healthy level. The PRA’s new standards will only make things worse and make it harder for small-scale landlords like me, who are in a position to provide a valuable source of housing”.