With so little instruction from the PRA, the ‘rules’ have been very much open to interpretation by lenders. As a result, the requirements each lender has from a portfolio landlord (classified as anyone with four or more properties) and their broker differ quite considerably.
To make it easier, Connect for Intermediaries has put together a table to guide their brokers through the minefield so that they can start preparing their clients. Of course, if any client needs to remortgage imminently, it is still better to do this before the 30 September if at all possible, to avoid the additional documentation that lenders will now require.
The good news is that most lenders appear to be willing to provide mortgages for portfolio landlords, the exceptions being Santander who will only accept remortgages, and Mortgage Trust who will no longer provide mortgages for landlords with four or more properties instead directing them via their Paragon brand. Unfortunately, BM Solutions is restricting background portfolios to just ten properties, a substantial change from their previous unlimited stance.
The PRA supervisory statement recommends a number of different measures for lenders as it said: “Lending to portfolio landlords is inherently more complex given the quantum of debt in aggregate, the cash flows and costs arising from multiple tenancies and potential risks of property and/or geographical concentrations.”
While the PRA suggests some examples of what lenders should consider, different lender’s interpretations mean different requirements. For example, four lenders so far have said that they will require landlords to provide a business plan, these are Aldermore, Castle Trust, Interbay and Kent Reliance. While, more surprisingly only Aldemore, Interbay, Kent Reliance and Leeds so far say they will need a cash flow prediction.
Most lenders on the other hand will require either an asset and liability statement and/or a portfolio spreadsheet.
There are other requirements for brokers to consider also, which include the stress testing of the existing portfolio. Skipton will stress test the existing portfolio based on rental income being 150% of notional mortgage payments calculated at 5.5%. Whereas Kent Reliance is 125% of 5%.
This stress testing of the existing portfolio could be problematic for landlords that have regularly geared their portfolios. Again, as the background portfolio stress varies from lender to lender, this emphasises how important it will be for brokers to keep on top of the criteria for all the different lenders – or work with someone who can. A thorough understanding of this criteria will be the difference between a client getting a mortgage after the 1st October – or not.