Since April 2016 there have been several changes for landlords operating in the Buy to Let (BTL) market. The Chancellor’s Budget ushered in a series of tax changes designed to ‘cool’ the rental market which were delivered by an extra 3% stamp duty on a 2nd property and removal of the 10% wear and tear allowance for furnished properties.
Further changes happened in April 2017 with the loss of higher rate tax relief against mortgage interest payments, which is being phased in over the next 4 years and by 2021. This will result in higher tax bills for many landlords holding property in their personal name.
If that wasn’t enough to digest the Prudential Regulatory Authority (PRA) have been making changes to BTL affordability which was implemented in January 2017 for all landlords.
Still to come from the PRA are changes to underwriting criteria, specifically for portfolio landlords, these are changes effecting landlords with 4 or more properties who will be subject to specialist underwriting from the 30th September 2017.
This might sound a bit alarming but in truth it is early days for these additional new rules and many lenders have yet to declare how they will implement these changes going forward. The amount of BTL mortgages Connect transact means we have been keeping a keen eye on the developments in this market and have a depth of expertise and knowledge to assist portfolio landlord clients continue with their rental business and finance needs.
For those lenders who have already declared how they will adopt these changes, there has been a mixed response and the rules have been interpreted slightly differently. Specifically, the PRA has directed lenders to take a proportionate approach based on their knowledge of the borrower, the existing portfolio and alternative sources of income.
Some have said there is little change to their existing processes or have stated they are not in the market; others have set-up new bespoke systems that sit alongside their existing arrangements. This is likely to mean that lenders will ask for more documentation from borrowers which could include things like a portfolio spreadsheet, asset and liability statement, cash flow analysis and a business plan.
Many BTL customers will clearly want to know if it affects their ability to borrow. It’s at times like this when you can reassure customers and provide advice in a number of areas:
- Review their portfolio to help them refinance any appropriate properties before the deadline of the 30th September.
- Prepare for the changes and additional documentation requirements so they can continue buying after the deadline.
- Understand the variety of criteria and deals being offered by lenders to minimise the impact of the changes.
Connect for Intermediaries CEO has her ear to the ground, with over 80 lender relationships it is possible to keep you updated on the latest developments but also advise on the best available solutions.
For your BTL customers who have 4 or more properties, either owned personally or in a SPV or LLP and holding a shareholder or directorship, they will be subject to the additional rules coming into place from the 30th September 2017. We suggest you prioritise talking to them. Use the information outlined in this blog as a basis for your conversation and then speak to us.
We can quickly review which lenders can help your customers so everyone can remain one step ahead.
In addition we offer a packaged service for over 40 of our lenders, enabling you to retain the client advice and broker commission. We can also look after your client for you with our referral service should you prefer. Contact us now for more details or complete the form below.