Overview of the PRA changes affecting buy to let mortgages
From 30th September 2017, landlords with four or more buy to let properties will be treated as portfolio landlords and will face tougher affordability checks. These will include landlords needing to submit more detailed supporting information; such as business plans, cash flow forecasts, bank statements, SA302s, tax returns, income and expenditure sheets etc.
To help you understand the lenders’ new underwriting requirements, we will shortly be launching a buy to let matrix which will include each lenders’ individual approach and requirements.
Lenders will need to apply a specialist underwriting approach to cases for portfolio landlords. They may request supporting information to evaluate a landlord’s portfolio, experience and future intentions; such as a spreadsheet detailing their property portfolio, assets and liabilities, business plans, cash flow statement, bank statements and SA302 etc.
Each lender’s interpretation of the buy to let changes may differ slightly and they may have varying degrees of assessments based on the number of properties a portfolio landlord has.
Existing PRA rules will still apply which means the interest coverage ratio is key to determining affordability. If landlords use personal income, then they will now face additional affordability checks. For example, tax liability, living costs, ongoing credit commitments(e.g. loans, credit cards, car finance and other mortgages) and any other financial commitments.
Rental Income Assessment
If rental income is used as part of personal income, then lenders will need to validate the income by comparing typical rents in the area and local rent demand. Plus future expected rental income will need to be verified by using existing rental agreements, valuation tools or an independent valuer.