This article first appeared in the InTouch newsletter from broker software company, IRESS.
By Julie Griggs, Director at CPC Finance
The buy-to-let landscape has undergone many changes in recent years and brokers and their clients have had a lot to keep up with. Recently, we held a day specifically for portfolio landlords, explaining to them what the recent changes to underwriting rules made by the Bank of England Prudential Regulation Authority (PRA) mean to them. It emerged that many landlords were still unaware of the true implications.
We thought it was worth confirming exactly what brokers need to ensure their clients know.
What is a portfolio landlord?
According to the PRA, a portfolio landlord holds four or more mortgaged buy-to-let properties across all lenders in aggregate. What matters is the number of properties, rather than the number of mortgages, so a landlord can have four properties on one mortgage and still be classed as a portfolio landlord.
What are the new rules?
Lenders are now assessing:
a) the borrower’s experience in the buy-to-let market and their full portfolio of properties and outstanding mortgages;
b) the assets and liabilities of the borrower, including any tax liability that is associated with the property. This should include the tax changes announced by HM Government in the Summer Budget 2015 with respect to mortgage interest tax relief;
c) the merits of any new lending in the context of the borrower’s existing buy-to-let portfolio together with their business plan; and
d) historical and future expected cash flows associated with all of the borrower’s properties.
How can brokers help their clients?
As lenders will be looking much more closely at all of a landlord’s records, investors need to make sure that all of their paperwork is in place. The three main elements are records for:
- A schedule of properties;
- Personal and professional income/expenditure;
- Valuation instruction
The schedule of properties is the most important to have ready. This should be kept up to date at all times. It should contain details of all the properties that a landlord owns, for example, including when properties are bought; how much yield the properties bring in; how much the mortgage is for; and whether the mortgage is fixed or tracker.
Additional proof of professionalism such as a cash flow forecast and a strong business plan will help, particularly for landlords with larger portfolios.
There is a large amount of new information that investors need to provide and brokers can help simplify this process. At CPC Finance we have developed a series of tools to assist our investors.
If portfolio landlords are not your area of expertise, you should find a master broker to partner with who will help your client to find the finance they need, no matter how large or complex their portfolio.
We provide expert advice to our broker partners on all areas of commercial finance, including finance for portfolio landlords.