On 30th September there are more changes coming for Buy To Let borrowers. The already hard hit property investor is about to find life getting yet more difficult. Hot on the heels of the changes introduced earlier this year the second tranche of regulation kicks in this month and it is not going to make life any easier.
What’s more worrying is that many property investors seem somewhat unaware of what is going on with the changes to buy to let mortgages.
The new regulations are aimed at reducing irresponsible lending in the buy to let sector. As is common with regulation, it is likely to hit the least guilty the hardest. The Bank of England (via the Prudential Regulation Authority) are placing new, tougher requirements on lenders from 30th September.
These include the interest rates-dependent ‘stress test’ on new mortgage applications and that the lender needs to assess a landlord’s ‘whole’ portfolio. This will hit multi-property landlords hardest, especially if one or two of their properties are running a loss or marginal profit. Let’s be honest, most landlords have these units within their portfolios.
Remember that landlords have already had the changes to stamp duty to contend with. The new changes are another challenge, and they don’t come without the usual grey areas either.
If you ever thought regulation would be black and white then you’re thinking too simplistic, if there is one thing regulation guarantees it is grey areas.
- Will all lenders do thing the same way? No
- Will all lenders look at income across the whole portfolio? No, some will some won’t
If one thing is certain then the days of simple buy to let mortgages are probably gone. Mortgage advice is now more essential than ever and it needs to come from both your professional mortgage broker and your accountant.
Let’s be honest, limited companies are not for everyone. With property lending, the limited company option does mean that buy to let lending is outside of the new regulations. Lenders will still be monitored so expect a similar structure to how mortgages are assessed, but you can also expect a little more leeway in the affordability calculations.
Leeway is something that could be a vital commodity, especially for multiple property owners who need that extra leg room in the rental calculations.
If you want to know more about the impending changes then this one-minute video summary may help, for anything more in depth then get in touch.
By Dave Farmer, Lime Consultancy