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The PRA defines portfolio landlords as: âborrowers with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate.â
If you do have 4 or more mortgaged buy-to-let properties, you will find a more paperwork intensive process. The lender may request a business plan, a portfolio spreadsheet, background portfolio stress testing, assets & liability or cash flow forecast.
At Cyborg Finance we help portfolio landlords through the paperwork. We know which mortgage lenders are in favour or not of portfolio landlords.
Landlords with 4 (or more) buy-to-let properties from September 2017 are required to meet new mortgage lending requirements.
These are in addition to the Interest coverage ratio (ICR), Interest rate affordability and Income affordability test that came in January 2017.
The Prudential Regulatory Authority (PRA) suggests that data shows "that arrears rates increase as portfolio size increases".
The PRA goes on to suggest "minimum underwriting standards ... broadly reflect existing practice for most lenders in the market today."
Our view: it's not"existing practice" it's a lot of additional paperwork, higher standards and slower process.
Landlords with four or more distinct mortgaged buy-to-let properties, either individually or together, in aggregate, will be treated as âportfolio landlords'.
Properties in Limited Companies owned by the Landlord will be included in the count.
Exceptions include holiday lets, bridging loans and corporate lending.
High Net Worth (HNW) are not exempt but lenders can take wealth into account to support background portfolio affordability tests.
The calculation of 4 properties does not include unencumbered buy-to-let properties. It's unknown if mortgage lenders will apply this distinction.
The PRA suggests Buy-to-Let Lender's request:
Mortgage lenders will apply new portfolio tests as they seem feasible to meet new PRA guidelines. They may differ in approach once announced:
Lenders are not looking for just a list of properties.
They want to test the overall viability of the portfolio including checking:
Many of the reasons may be self-explanatory - checking LTV to ensure no properties are in negative equity. Though others such as the location of current properties in comparison to the new purchase and if it passes viability tests.
The forecast estimates what the cash into the bank account and cash out of the bank account will be over the next 12 months.
The cash flow forecast is to test the financial viability of extending your portfolio.
They want to ensure positive cash flow or if there is a dip that excess funds exist to cover it.
The Income and Expenditure document is outlining your current budget. It is an overview of all your income streams (wage/rents/etc.) as well as any expenditure such as day-to-day costs and credit agreements.
Income and Expenditure are to test your current financial viability and identify any risks in your current budget.
It's an affordability test - if you break even or expenditure is higher than income then the case may be declined.
Your business plan is a formal statement of your goals, reasons they are attainable and plans to reach them.
A business plan can help you inform the mortgage underwriter of your competency (how long you have been a landlord), experience, current approach, future plans and how expanding your portfolio will assist with your goals.
For example - To explain the business logic of investing in Scotland despite living in London is a good business decision, how properties are to be managed and how you have experience in the differences in UK and Scotland Tenancy legislation.
These are required to verify the information you have provided. You have not omitted any income or expenditure which may change the outcome of the income and expenditure decelerations made earlier.
The documents assist as proof of identity, evidence of residence, proof of income, proof of expenditure, money laundering checks and so forth.
These are required to verify the income you have declared on your portfolio spreadsheet that the rents are accurate. Lenders may also be able to check tenants residence at the properties using credit data - to help prevent fraud.
#How will bank's implement the PRA Rules?
The article so far has been regarding PRA guidance after insisting that lenders look at portfolio landlords differently. How each bank will apply the guidance is set out below.
The PRA defines portfolio landlords as: âborrowers with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate.â
If you do have 4 or more mortgaged buy-to-let properties, you will find a more paperwork intensive process. The lender may request a business plan, a portfolio spreadsheet, background portfolio stress testing, assets & liability or cash flow forecast.
At Cyborg Finance we help portfolio landlords through the paperwork. We know which mortgage lenders are in favour or not of portfolio landlords.
Landlords with 4 (or more) buy-to-let properties from September 2017 are required to meet new mortgage lending requirements.
These are in addition to the Interest coverage ratio (ICR), Interest rate affordability and Income affordability test that came in January 2017.
The Prudential Regulatory Authority (PRA) suggests that data shows "that arrears rates increase as portfolio size increases".
The PRA goes on to suggest "minimum underwriting standards ... broadly reflect existing practice for most lenders in the market today."
Our view: it's not"existing practice" it's a lot of additional paperwork, higher standards and slower process.
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We are authorised and regulated by the Financial Conduct Authority (No. 919921). The FCA does not regulate most Buy to Let mortgages.
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