Securing a buy-to-let mortgage is about to get much tougher. In a bid to reduce irresponsible lending in the sector, the Bank of England, specifically the Prudential Regulation Authority [PRA], have placed new, tougher requirements on lenders.
These new rules came into effect in September and include an interest rate-dependent ‘stress test’ on new mortgage applications.
Lenders now need to review a landlord’s entire property portfolio when making a lending decision on a single property application, which will hit hard on multi-property landlords, especially if any of the portfolios properties aren’t producing an adequate profit.
Different lenders are going to apply the new rules in different ways so there will be some issues over the coming months.
The new stress test will apply to a Landlords entire portfolio and if there are some under-performing properties it may end up with any new borrowing being declined.
Some lenders will ask for a business plan from the landlord to see what they are planning to achieve over the next few years, they may also be asked to produce detailed cash flow analysis to support the business plans.
These new changes are already on top of the 3% Stamp Duty Land Tax rate for additional properties and lower tax reliefs available to private landlords.
Earlier this year the PRA also introduced stricter rental income calculations, meaning rental yields must now cover more than 130% of funding cost.
Most new landlords are looking to put new investment properties into a Ltd Co, which is mainly driven by tax efficiency, this can however carry its own complications and careful consideration is needed when looking at this scenario.
The Government seems adamant that being a landlord is a bad thing for the economy and is working hard at introducing policies to try to dissuade people from purchasing investment properties.
If you have a buy-to-let property or are considering purchasing investment properties, contact us to discuss how best to structure and fund your operation. We have Chartered Accountant in Canary Wharf, Chartered Accountants in Essex and Chartered Accountants in Manchester all waiting to take your call.