The Prudential Regulaton Authority (PRA) have set out their rules for standardising Buy to Let criteria, the first part of which around interest coverage ratios and affordability came into play on 1st January. PS28/16 stated that lenders must change their interest coverage ratio (ICR) to a standard 5.5% for all products with less than a five-year term. The second part of the paper involves changes to what is classed as a professional landlord and the stress testing of properties in the background for clients who have more than 4. From 30 September, all lenders must make changes to the way in which the underwrite any buy to let applications for portfolio landlords.
What is a portfolio landlord?
The PRA define portfolio landlords as: “borrowers with four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate.”
A number of lenders have already announced how they will approach portfolio landlord lending and Paradigm have now created a factsheet containing a range of relevant information on each lender’s portfolio landlord underwriting policies so as to provide a document that advisers can use to cross-check and compare.
We have captured the following information:
- How the lender defines a portfolio landlord.
- Whether the lender allows portfolio landlord applicants and whether it has a specific scheme for them.
- The number of allowable buy-to-let properties with the lender and elsewhere.
- Document requirements and the range of additional underwriting that will be carried out.
- The lender’s rental assessment calculation, what additional rental checks there are and whether the lender will ‘top-slice’ income.
- Appropriate dates for the lender’s introduction of its portfolio landlord criteria and any further dates
Please click here to view the latest version of our Lender Criteria Matrix which we will keep up to date as more Lenders announce their position on this.
We have created an example of a portfolio landlord business plan for you to use which covers off the current, and future, investment strategy details and can be used to provide information on the landlords’ properties such as location, type, tenant profile, property management, supporting business infrastructure, rent to cost model, and details of any professional service providers. This can also be downloaded here.
Paradigm's BTL Guides
Paradigm has also produced the following guides which we hope will help you with regards to dealing with the Buy to Let market changes.
The PRA set out their new rules for standardising Buy to Let criteria, of which the first part around interest coverage ratios and affordability came into play on 1st January. The paper stated that lenders must have changed their interest coverage ratio (ICR) to a standard 5.5% for all products with less than a five-year term.
Paradigm have created this sheet with the recent changes for each Lender.
Paradigm’s Mortgage Helpdesk team have produced this guide to help alleviate the work involved when sourcing BTLs. This document provides guidance on:
- Which lenders use top slicing of income in affordability
- Which lenders offer the best five year fixed rate
- Which lenders offer Limited Company BTLs, and
- Which lenders use a lower stress rates and/or ICR calculation for re-mortgage transactions with no extra borrowing
Government guides for your landlord clients
- Running a limited company including directors' responsibilities, taking money out of a limited company and company changes a director must report.
- Tax relief for residential landlords: how it's worked out (including case studies) - The tax relief that landlords of residential properties get for finance costs is being restricted to the basic rate of Income Tax. This is being phased in from 6 April 2017 and will be fully in place from 6 April 2020.
- The Let Property Campaign - an opportunity for individual landlords to bring their tax affairs up to date if they are letting out residential property in the UK or abroad and to get the best possible terms to pay the tax owed.
- Let property campaign: A guide to making a disclosure
- Examples of tax errors landlords make as part of the Let Property Campaign - showing some of the common tax errors people make when renting out their property
- Webinars, e-learning, videos and other help for landlords
- Corporation Tax rates and reliefs
- Income Tax when you let property: work out rental income
We hope this is of help to you all, and as always, if you have any questions then please get in touch via the Mortgage Helpdesk or by ringing Christine Newell on the relevant phone numbers.