In January 2017 the Bank of England’s (BoE) Prudential Regulatory Authority introduced two stages of changes to ‘cool off’ the buy- to- let market. The first stage required lenders to apply an interest cover ratio of 5.5% to all products with terms of less than five years. The second stage, which came into action in September 2017, required portfolio landlords (with four or more buy- to-let mortgages) to undergo specialist underwriting processes when seeking new buy-to-let mortgages.
Research released by the National Landlord Association (NLA) has highlighted that 63% of landlords and 70% of portfolio landlords, who are aware of the changes, believe it is now harder than ever to get a mortgage. This is because the practices are seeing landlords having to deal with new factors such as affordability tests, providing supporting documentation such as business plans and an entire investigation of portfolios when considering new applications for a property. According to over 46% of landlords the finance process has slowed down and there has been a significant reduction in mortgage product ranges.
The private rented sector makes up of 20% of the housing market. CEO of the NLA, Richard Lambert has said “The changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios…it is vital that professional landlords are incentivised to continue providing good quality affordable housing to those who need it”. Richard Lambert has suggested that all portfolio landlords should speak with a mortgage broker or bank before committing to new properties.