As you might be aware, 2016 saw big changes for landlords, including higher stamp duty and the removal of tax relief on mortgage interest, which will be pared back from up to 45% to a flat 20% tax credit over the next 3 years.
If that was not enough of a change, the Bank of England’s lending arm, the Prudential Regulation Authority had introduced new affordability checks for landlords in a bid to ensure the stability of the economy. The new regulations seek to ensure the financial system is less at risk from unaffordable mortgages, so when rates do increase landlords can absorb any increases to the cost of their mortgage.
Whilst this should not cause you a major issue if you have one or two mortgaged properties. Landlords with four or more buy-to-let mortgages have been warned to prepare for a major headache when these new rules now force lenders into tougher lending assessments.
From 30 September 2017 (yes, September), the new affordability checks mean any landlord who owns four or more mortgaged buy-to-let properties will have to submit income and mortgage details on all of them every time they refinance one, or purchase a new property. It means that the volume of work for lenders will increase massively, and one expert has warned it could mean some lenders stop lending to such landlords altogether.
Whilst the PRA rules are intended to make sure that in future lenders look at landlords’ full financial exposure when assessing them for a mortgage – in the hope that riskier lending is avoided. This will inevitably require more underwriting will push up costs for lenders – and consequently for landlords in this bracket. Mortgages for these so-called portfolio landlords are therefore likely to get more expensive over the coming 12 months and there are likely to be fewer options available.
What should you do now?
You know what I am going to say… get in touch with your mortgage adviser now. Brokers have access to a far wider selection of lenders than you see on the high street or even online, and they often get preferential rates for buy-to-let clients.
One thing you should not do is ignore this and do nothing. If you are unsure on the best course of action I will be delighted to have a chat so get in touch.