Imminent new rules in relation to so-called mortgage ‘stress tests’ will be phased in between now and October 2017, and could make it more difficult for buy-to-let landlords with large portfolios to access new mortgages.
Under the new rules, which have been recommended by the Prudential Regulation Authority (PRA), mortgage lenders will need to implement drastic new measures to strengthen stress-tests for any landlords who currently own and let out four or more mortgaged properties.
This means that so-called ‘portfolio landlords’ will be assessed on how potential interest rate rises might affect their ability to pay their mortgage, while rental income will be much more thoroughly checked and assessed before a new loan can be granted.
In fact, portfolio landlords will need to prepare and supply detailed tax and financial information when applying for any new loans once the new rules are in force.
Such information must include tax returns for any properties in their existing portfolio, cash flow projections, business plans, information regarding assets and liabilities and more.
Landlords are being warned that they must take great care in preparing and supplying this information, as any errors or inconsistencies noted by the lender in the financial information provided will inevitably result in a rejection of the mortgage application.
Furthermore, landlords are advised to be wary that lenders are unlikely to take a ‘one size fits all’ approach to their stress tests – meaning that shopping around for the best deal may prove time-consuming and complex, while traditional ‘agreements in principle’ may soon be a thing of the past.