As of 30th September 2017, the PRA’s (Prudential Regulation Authority) new portfolio-landlord criteria came into force. Those landlords with 4 or more mortgaged buy-to-let properties are now classified as “portfolio landlords” and new rules now apply. The key changes are that the Lender is required to take a more holistic view of the borrower’s circumstances, especially those of their existing portfolio. In addition, the stress test rates used to calculate borrowing potential have increased for those impacted by the change. Portfolio Landlords will have their background portfolio assessed, their experience and their other assets and liabilities as part of the changes.
Additional Information required by Lenders
Portfolio landlords must provide additional information to enable lenders to adhere to the PRA rule changes. The extent of the information required does depend upon the lender, with some lenders incorporating a more lenient approach in their interpretation of the PRA rules. However, the majority of lenders will ask for a property portfolio spreadsheet. The information held within this spreadsheet gives the lender information which allows them to assess the risk of the client and the properties held within the portfolio.
The lender will ask for values of properties and quite often run these values against their own AVM (automated valuation model) to ensure these are accurate. The outstanding mortgage balances will be cross referenced against credit bureau data to ensure these are also accurate as this provides an LTV percentage. If a portfolio is too highly geared (75% plus) this maybe a concern for some lenders as the client may be perceived as more of a risk for present and future lending. Some lenders who operate in the portfolio market will not lend to a client whose portfolio is in excess of 75% LTV.
There is also a requirement for most lenders to provide a business plan. This gives the lender an insight on current and future strategy & funding requirements. The complexity of the business plan, again, depends upon the lender. In some instances, the business plan maybe a simple ‘tick box’ exercise, in other instances the lender may require more complex information such as ownership within other limited companies and commentary on void periods and how these have been handled.
Cash Flow Forecast?
Less frequently the lender will ask for a cash flow forecast and an assets and liability statement. This does provide a bigger picture for the lender for larger portfolios and indicates how the portfolio is been managed. The cash flow forecast assesses management costs, utilities, costs of maintenance, property improvements, council tax etc. If the cash flow is positive this evidences a well-managed portfolio. The assets and liabilities statement does provide further information to the lenders to ensure their perspective client is not highly leveraged in respect to debt and has sufficient assets to cover any rental voids in the future.
The lenders attitudes towards portfolio landlords are changing with more mainstream lenders coming on board who initially where apprehensive post PRA. The requirements from certain lenders have also been modified resulting in a slicker process. The industry is evolving constantly as there is a realisation that lenders must be flexible and pragmatic to allow their lending volumes to increase and for the BTL market to continue to thrive.
If you would like to discuss your portfolio or how the PRA changes will affect you, contact A Move Brokers on 01244-478-780 for a discussion and an impartial “whole of market” quotation.