23^rd Mar 2018

Ever increasing numbers of private rented sector investors, are finding it more and more difficult to be accepted for new buy-to-let mortgages because of the stricter lending criteria imposed by the PRA (Prudential Regulation Authority).

The Bank of England has over the past six months attempted to slow down the growth of the private rented sector and 63% of landlords, that took part in a survey held by an industry body, said it is far tougher to obtain a new BTL mortgage. It was also found that 70% of landlords who have portfolios found it increasingly difficult since the restrictions.

Nearly half of all landlords (48%) who were aware of the new stricter lending regime have experienced a far longer finance process taking place since the changes. 46% feel that the changes has had the effect of reducing the availability of mortgage products.

The PRA introduced the changes in two phases in 2017:

1st Phase - A new requirement for lenders to ensure that the rental income for the proposed BTL property would be much higher than the monthly mortgage payments, with an interest cover ratio (ICR) of 5.5% is now needed. The lenders also had to take into consideration extra costs such as letting agency fees and any management charges when calculating the income coverage, on average monthly rental income should be able to 'fund' 125% of mortgage repayments.

2nd Phase - This was introduced in September and targeted portfolio landlords, those with four or more BTL mortgages, to be subjected to new specialist underwriting processes when applying for buy-to-let mortgages. They would have to supply corroborating evidence for the new affordability tests which will include their business plans. The underwriters will also have to study the applicant's entire portfolio when considering their decision, rather than just the property that they are applying for a BTL mortgage.

A spokesman for the industry body, said: “These findings show that the PRA’s changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios.

“Given that the private rented sector now makes up 20% of the housing market, it is vital that professional landlords are incentivized to continue providing good quality affordable housing to those who need it. This appears to be achieving quite the reverse.”

“Landlords looking to add new properties to their portfolios need to be conscious of the new requirements. We suggest talking to your mortgage broker or bank before committing to any new property.”

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