The rules, taking effect on 30 September, will require all lenders to use additional affordability tests on landlords with a portfolio containing four or more mortgaged properties.
Industry experts have already expressed concerns the rules could dampen the availability of loans to portfolio landlords and push prices up, as they force the bigger, more mainstream lenders to shy away from this type of lending.
Integrity Wealth Management director Michael Lawlor said all portfolio clients should be thinking about reviewing their position ahead of the changes.
He said: “[Remortgaging] has been something I have been speaking to clients about for a while as the lender requirements have become so much stricter. All clients with portfolios should be speaking with their brokers to review their position.”
However, he added not a lot of his clients were eligible for remortgages in practice. “At the moment we are not seeing a lot of take up from clients to refinance as a lot of them are either tied in to a product or on very good rates,” he added.
Lawlor said clients should not underestimate how difficult it was to switch products under the new rules, however. He said there was an issue with clients seeing “all of the cheap rates being advertised but [not understanding] the affordability checks and the rental requirements for getting these deals.”
Don’t remortgage ‘for the sake of it’
Advisers are unable to encourage clients to remortgage before the end of their mortgage contract, said AA Mortgage Gateway director Mossy Sowlat.
Instead he is saying to clients, “if they have any intention to increase the portfolio, to do it sooner than October when PRA new rules are in force.”
Similarly, principal owner of First Alliance Financial Services Waseem Herwitker said he would not advise people to remortgage “for the sake of it”. But those who intend to take money out for further investments would be well advised to review their mortgage deals before October, he said.
“The changes are going to make it harder [to remortgage]. We encourage clients to review their portfolio if they are looking to invest further.”
The upcoming regulatory rules changes are part of a package of measures announced by the Prudential Regulation Authority last year.
For portfolio landlords, lenders will be expected to assess the borrower’s experience in the market including their full portfolio of properties and any outstanding mortgages, the assets and liabilities of the borrower and the merits of any new lending in the context of the investor’s existing portfolio.
Herwitker expected the changes to have an impact on the market but said it was impossible to know to what extent that would be.
“We know the rules but we do not know fully what the lenders are going to do. Some changes have already impacted on the market, contributing to the [current] slowdown,” he said.
In the dark on mainstream criteria
It is still unclear how mainstream lenders will react to portfolio lending. However, Precise Mortgages managing director Alan Cleary told Mortgage Solutions in February a reluctance from the bigger lenders to play in this space would undoubtedly restrict product choice for borrowers.
He said: “Portfolio landlords make up around half of the buy-to-let market and when you look at our lending the average number of properties per borrower is eight. We expect more lenders to come out and say they don’t plan to operate in the portfolio space so you could see competition dampened.”
The regulator is considering a thematic review set for early 2018 to assess firms’ implementation of the new standards.