If there’s one thing we’ve learnt in the buy-to-let market of late it’s that there is little point getting comfortable because you can guarantee more change is coming.
As the sector continues to get to grips with the cuts to landlord tax relief, the Stamp Duty surcharge and the changes to the wear and tear allowance – not to mention the proposals in the Draft Tenants’ Fee Bill – it needs to prepare for yet another ream of regulatory changes with the arrival of phase two of the Prudential Regulation Authority (PRA) standards.
The first phase came into play in January and required all lenders to stress test borrowers against future interest rises – prompting many lenders to increase the amount of rent that landlords would be required to achieve in order to be accepted for a mortgage.
This second phase is focused on portfolio landlords and will see lenders take a much more vigorous approach when assessing risk and affordability.
The change has led to a spike in people looking to set up a limited company buy-to-let but, as is discussed in more detail here, that might not be the best solution.
So what does it mean for you?
Well, that depends on how many properties you have and how much finance.
Under the PRA’s definition, a portfolio landlord is one who has four or more mortgaged properties.
As of September 30, such landlords are required to provide much more information in order to prove they’re not overexposed.
Lenders will want details on your entire portfolio, regardless who the properties are mortgaged with, in order to make a decision on whether they’re able to lend to you.
Depending on the lender, you could be asked to provide details on your assets and liabilities, your total mortgage borrowing across all properties and lenders, your reasons for extending your portfolio, projected cash flow from your portfolio and your income from both rents and other sources.
You’ll likely need to provide a business plan along with recent bank statements, tax returns and income and expenditure statements as well as details of all your tenancy agreements.
How to prepare for the changes
Get your paperwork up to date now, even if you’re not looking to remortgage in the next few months.
If a business plan and cash flow projection is required, the more detailed and thorough you can be the better chance you have of moving the process along quickly – and avoiding the lender coming back and asking for more information.
Be prepared to wait
There will undoubtedly be delays as the new processes bed in. Expect them.
Consider all options
We all know the property world can move quickly, particularly when it comes to investment properties.
If you don’t want to miss out on a property consider using short-term finance in the first instance over the next couple of months while lenders get to grips with the new way of operating.