New research from the National Landlords Association has revealed that six months after the Bank of England’s latest attempt to cool the buy to let market, as many as 63% who are aware of the changes say it is now harder to get a mortgage.
The changes, which come from BoE’s Prudential Regulatory Authority (PRA), were introduced in two stages last year. The first stage in January 2017 required lenders to apply an interest cover ratio (ICR) of 5.5 percent to all products with terms of less than five years. More stringent stress tests were also introduced for all buy-to-let mortgages, with monthly rental income typically needing to cover 125 percent of mortgage repayments.
The second stage, introduced in September 2017, requires portfolio landlords, i.e. those with four or more buy to let mortgages, to undergo specialist underwriting processes when seeking new buy-to-let mortgages. This includes additional affordability tests with providing supporting documentation such as business plans. It also means that underwriters must look at the landlord’s entire portfolio when considering new applications, not just the property needing to be financed.
According to the NLA’s research, the number increases to 70% for portfolio landlords, i.e. those with four or more buy-to-let mortgages.
Similarly, 48% of landlords aware of the changes believe it has slowed down the finance process and 46% believe the changes reduce the range of mortgage products available.
Richard Lambert, CEO of the NLA said: “These findings show that the PRA’s changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios. Given that the private rented sector now makes up 20 percent of the housing market, it is vital that professional landlords are incentivised to continue providing good quality affordable housing to those who need it. This appears to be achieving quite the reverse.”
Landlords looking to add new properties to their portfolios need to be conscious of the new requirements. We suggest talking to your mortgage broker or bank before committing to any new property.”