Posts with tag: underwriting changes

Some Landlords may be Banned from Lenders under new Rules

Published On: September 27, 2017 at 9:31 am

Tags: mortgages,portfolio landlords,PRA changes,underwriting changes

Some landlords may be banned from certain lenders under new mortgage lending criteria from the Prudential Regulation Authority (PRA).

From 30^th September 2017, landlords with four or more mortgaged buy-to-let properties will be subject to stricter lending criteria when remortgaging or taking out a mortgage on a new property.

Some Landlords may be Banned from Lenders under new Rules

The new rules mean that lenders will have to take a landlord’s total income versus borrowing across their whole property portfolio into account. This change is designed to ensure that borrowing on any new properties does not have a negative impact on the landlord’s ability to repay loans on other properties within their portfolio.

Currently, lenders assess a landlord’s application based on the rental income and value of the property they are lending against. The new regulations will mean that, not only is the property being lent against considered, but also the rental income, geographical spread, value and any loans across all properties in a landlord’s portfolio.

The new rules will only affect a very small proportion of landlords, as many either own their properties outright or have fewer than four properties. Data from UK Finance shows that just 11% of the UK’s 1.9m landlords own four or more properties, while an even smaller amount use mortgages to finance their investments.

Only those with poor cash flow or a high number of properties in one geographical location should be concerned. This highlights the importance of obtaining regular and up-to-date rental valuations, to ensure that your properties are marketed at the correct prices. And, for those with multiple properties in one location, seeking expert financial advice before the changes come into force is advised.

The stricter criteria mean a lot more work for lenders, which could result in them refusing to offer mortgages to landlords with large portfolios.

The main impact of these changes on landlords will be the time it takes for a mortgage application to go through. With all of the additional considerations for lenders, it’s recommended that you allow a minimum of three months for the application to be processed.

However, the new rules are likely to mean that landlords will have a more limited choice of lenders and products to choose from when it comes to purchasing a new property or remortgaging an existing one.

It’s also advisable that you check that your current lender will be continuing to offer their services to portfolio landlords and, if required, whether you can refinance with them in the future.

The changes also highlight the importance of keeping up-to-date, detailed records for all of your properties. This way, when the time comes to remortgage, you will have all of the information needed for your application to hand. This should include: your current mortgage value; rental income; outgoings; and rental profits, along with tax returns for all of the properties you own.

If you have not done so in the past six months, now is definitely the time to review your portfolio and any associated mortgages, to ensure that you are on the best possible rate, making the maximum amount of profit and, most importantly, won’t run into any difficulties in financing or growing your portfolio in the future.

Foundation Home Loans Open for Business for Portfolio Landlords

Published On: September 15, 2017 at 9:28 am

Author: Em Morley

Categories: Finance News

Tags: buy-to-let mortgage,mortgages,PRA changes,underwriting changes

Foundation Home Loans has confirmed that it will continue to provide its range of competitive mortgage products to portfolio landlords ahead of new underwriting changes.

Foundation Home Loans Open for Business for Portfolio Landlords

The lender has outlined its portfolio lending proposition for intermediaries ahead of the 30^th September 2017 deadline for the new Prudential Regulation Authority (PRA) underwriting standards.

Overall, there is very little change to the lender’s approach and underwriting criteria. Keeping the data requirement for background portfolios to a minimum, Foundation Home Loans will verify key data points electronically.

Background portfolios must have:

A maximum aggregate portfolio loan-to-value (LTV) of 75% – this is calculated across the whole portfolio, including unencumbered properties.
A minimum aggregate rental cover ratio will be 125% – stressed at 5.5%.

Intermediaries will continue to access Foundation’s existing products via its easy to use online system, where they can now upload details of the portfolio from a spreadsheet.

As before, borrowers may have unlimited background portfolios and finance up to £2m with Foundation. The lender provides a competitive product range for individuals and limited companies, and recently launched a House in Multiple Occupation (HMO)/multi-unit block product.

With Foundation’s products, there is no minimum income and no minimum period of employment or self-employment.

The Director of Marketing at Foundation, Jeff Knight, says: “Our research, undertaken amongst intermediaries and portfolio landlords, highlighted a need for a proposition that is simple and pragmatic – something that has always been at the heart of our approach. Therefore, we have not had to change much at all and will continue to provide a straightforward proposition to intermediaries.

“Indeed, portfolio landlords already represent around 50% of our business, so, unlike other lenders, this is very much business as usual for us and our intermediary partners.”

At the same time, the lender is increasing its maximum loan size across its buy-to-let range – a move made in response to increasing demand.

With immediate effect, the maximum individual loan size will increase to £1m for loans up to 65% LTV. For loans up to 75% and for HMOs, the maximum loan size remains at £500,000. There is no change to pricing.

Knight comments: “We have been receiving an increasing demand from intermediaries for larger loan sizes, so this is a simple move in response to that. As a growing specialist intermediary lender, we will continue to identify ways to expand our product proposition to the market.”

Be Prepared for New Buy-to-Let Portfolio Rule Changes this Month

Published On: September 1, 2017 at 9:30 am

Author: Em Morley

Categories: Finance News

Tags: portfolio landlords,PRA,underwriting changes

This month, the Prudential Regulation Authority (PRA), which is part of the Bank of England (BoE), will start to enforce tougher lending standards on buy-to-let portfolio landlords – those with four or more mortgaged buy-to-let properties.

We have created a guide for landlords on the new rules: /landlords-guide-pra-portfolio-underwriting-changes/

Be Prepared for New Buy-to-Let Portfolio Rule Changes this Month

Although the new buy-to-let portfolio rule changes are due to be introduced from 30^th September 2017, some lenders will apply the new rules from today, 1^st September.

We’ve spoken to London estate agent Portico about the upcoming buy-to-let portfolio rule changes.

The agent’s Regional Director, Mark Lawrinson, comments: “Under the new rules, if you want to make an application for a buy-to-let-mortgage on a new rental property, the lender will have to look at your entire property portfolio when they decide what mortgage deal they can offer on a single property.

“For example, if you have six properties and four are generating enough rental income to cover mortgage payments and then some, but the other two are not, your new mortgage application may not be approved by some lenders.”

He continues: “As of 30th September, lenders will also require a full breakdown of rental properties, a business plan, and cash flow projection to support a new application.

“As a result of the new buy-to-let lending changes, we may see a surge of rental stock come back on the market for sale, as landlords look to offload their weakest performing properties in order to get further lending on more potentially profitable properties.

“The new rules could also have a knock-on effect on rental prices, as landlords look to cover any shortfalls or carry out works to a property to both increase the capital value and the rent, in turn improving the yield and the return.”

Seasoned landlord and the London representative for the National Landlords Association (NLA), Richard Blanco, had this to say: “Landlords who want to remortgage or capital raise before being assessed through the new criteria will need to get their skates on. They may be too late for some lenders, who are applying the new rules from Friday 1^st September.

“Many lenders will unfairly assess landlords’ existing mortgages through a 145% x 5.5% prism, even though they originally got their mortgages on looser criteria years ago. This could create mortgage prisoners: borrowers who are unable to switch lenders. This is a reminder that if you do remortgage to another lender, always choose one that has a good track record in switching customers to competitive follow-on rates once the initial product has expired.”

He adds: “Landlords are gradually waking up to the fact that they are having to borrow at a much lower loan-to-value [LTV], so they may not get further advances because rental coverage has to be much higher. If their regular lender has decided not to do business with portfolio landlords, they may need to take their business elsewhere.”

Portico also asked mortgage experts Capricorn Financial who the new buy-to-let portfolio rule changes will affect: “A few lenders are likely to withdraw from this arena as a result of the new rules. Santander have already indicated they will not lend to portfolio landlords for purchases or additional borrowing, while others have improved their offering through brokers – NatWest, for example, have gone from a maximum of four properties to ten.”

The new lending changes come on top of tighter stress tests for buy-to-let landlords, which came into force in January this year.

A Landlord’s Guide to the PRA Portfolio Underwriting Changes

Published On: August 31, 2017 at 8:05 am

Author: Em Morley

Categories: Landlord News

Tags: mortgages,portfolio landlords,PRA,underwriting changes

Earlier this year, the Prudential Regulation Authority (PRA), which is part of the Bank of England (BoE), launched phase one of its underwriting changes for buy-to-let mortgages. The upcoming phase two will include portfolio underwriting changes for landlords who own four properties or more.

Phase one introduced stricter affordability tests for lenders to impose on landlords, including a stress test on interest rate rises.

A Landlord’s Guide to the PRA Portfolio Underwriting Changes

All those in the mortgage and property investment markets must be aware that, from 30^th September 2017, phase two will be launched.

The PRA will require changes to the way that mortgage applications are underwritten for portfolio landlords – those with four or more mortgaged buy-to-let properties. The reason for this measure is that the PRA has found that mortgage arrears rates increase as landlords’ portfolio sizes grow.

Any borrower that falls into the portfolio landlord category will be required to pass specialist affordability checks when the portfolio underwriting changes are introduced.

The PRA has not outlined a specific requirement for lenders, but has detailed that they should take the following into account: a landlord’s experience; their full portfolio; their rental income; any outstanding mortgages; their assets and liabilities. They should also take into consideration the merits of any new lending in accordance with the landlord’s business plan, alongside historical and future expected cash flow.

The PRA is not concerned with recent landlord tax changes.

If you’re a portfolio landlord, lenders will need to make sure that you are not over-exposed and will therefore stress your background portfolio from 30^th September. This means that they will take your entire property portfolio into account when making a decision on your mortgage application.

At present, not all lenders have outlined how they will apply the PRA’s guidelines, but you can expect them to assess the following:

Your property investment experience
The total amount of mortgage borrowing you have across your portfolio
Your assets and liabilities – including tax liability
The merits of any new lending in context of your existing buy-to-let portfolio, along with your business plan
Historical and future expected cash flow from your portfolio
Your income – both from your portfolio and elsewhere

When applying for another buy-to-let mortgage, you should be prepared to be asked for the following: your up-to-date property portfolio spreadsheet; a business plan; cash flow forecasts; your last three months’ bank statements; submitted tax returns; and potentially income and expenditure statements for your portfolio.

If you are a portfolio landlord and plan to take out another buy-to-let mortgage, you must be ready for the additional tests.

To be in the best position, we advise getting your paperwork in order and ready for the application process. As ever, it’s important to keep your property portfolio spreadsheet updated.

If you are planning to review your portfolio, it’s probably a good idea to do this sooner rather than later.

Whatever your plans, be aware and ready for the portfolio underwriting changes!

BM Solutions Announces Criteria Change Ahead of New Portfolio Rules

Published On: August 23, 2017 at 9:50 am

Author: Em Morley

Categories: Finance News

Tags: mortgages,portfolio landlords,PRA,underwriting changes

BM Solutions Announces Criteria Change Ahead of New Portfolio Rules

BM Solutions is the latest lender to announce its criteria change ahead of new portfolio underwriting rules for buy-to-let landlords.

The lender has set out the details of its criteria change ahead of the introduction of the Prudential Regulation Authority’s (PRA) tougher underwriting standards next month.

To fully understand the new requirements for portfolio landlords, this handy guide explains everything you need to know: https://www.justlandlords.co.uk/news/portfolio-landlord-underwriting-changes/

From 30^th September, BM Solutions will accept a maximum of ten mortgaged buy-to-let properties per applicant, and up to three properties with Lloyds Banking Group.

Under the lender’s criteria change, portfolio landlords will now need minimum earnings of £30,000 earned taxable income per portfolio application, while it will not underwrite portfolios with a maximum aggregate loan-to-value (LTV) ratio above 75%.

The lender has also announced that it will tighten its minimum portfolio affordability requirement by 5%, to 145%.

Applicants with at least four mortgaged buy-to-let properties will have to provide more information when applying for a loan through BM Solutions, including proof of income and supporting documents, but there will be no changes to the lender’s existing process for landlords with three or fewer mortgaged buy-to-let properties.

The Head of BM Solutions, Phil Rickards, comments on the criteria change: “From this week, we are speaking to several thousand brokers up and down the country, covering the new criteria in detail and helping show how it will translate into real time for their businesses.

“There are still a few places remaining, so those still looking to attend should contact their BDM as soon as possible.”

If you are a portfolio landlord or are looking to expand your portfolio, you must be aware of how the PRA’s underwriting changes will affect you when applying for another mortgage.

You can keep up to date with how lenders are reacting to the requirements at Landlord News.

Landlords Being Urged to Remortgage Ahead of Tougher Lending Criteria

Published On: August 22, 2017 at 9:04 am

Author: Em Morley

Categories: Landlord News

Tags: mortgages,portfolio landlords,remortgaging,underwriting changes

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.

Landlords Being Urged to Remortgage Ahead of Tougher Lending Criteria

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 (30^th 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”.

Case study

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”.