New rules will make it more difficult to remortgage portfolios in October
The National Landlords Association (NLA) is advising buy-to-let investors who are considering remortgaging to do so now. If you wait much longer, the new lending criteria, which will be introduced at the end of September, will make it tougher to get a good financing deal.
What are the new lending criteria for buy-to-let investors?
The new buy-to-let lending regulations will affect you if you own four or more mortgaged properties in your portfolio. If you wish to borrow to refinance your portfolio or add more properties, you’ll need to provide more evidence of your financial and investment acumen.
No one can tell you exactly what evidence you provide because the Prudential Regulation Authority (PRA) hasn’t provided a neat set of requirements. Instead, it has outlined what lenders should take into consideration. It includes:
- Your experience as a buy-to-let investor
- Rents that you charge
- Rental arrears
- Your outstanding mortgages
- Historical cash flows
- Projected cash flows
- Your assets, liabilities, and tax liabilities
You will also need to provide details of your property portfolio, and the PRA has instructed the lender that they should take into consideration your property investment business plan.
These new criteria will make the process of getting a new buy-to-let mortgage, or remortgage single properties or a whole portfolio, much harder. For the lender, it becomes like lending to businesses. It’s possible that some lenders will simply refuse to lend to an investor who owns four or more properties.
To avoid this hassle, if you are considering remortgaging your buy-to-let portfolio, you should do so as soon as possible, and before the new rules come into effect.
Why would you consider remortgaging now?
The changes to buy-to-let taxation – and especially the phasing in of reduced tax relief on mortgage interest – could eat into your profits, particularly if you pay tax at the higher rate or expect to in the future. To limit this damage, there are several possible options you can take. Many of these involve remortgaging.
You should consider your current and future tax position now and what strategies you can use to limit the effects of the buy-to-let tax changes. If you don’t, you could find yourself with higher tax liabilities in the future, and unable to remortgage easily to repair the damage.
It’s getting harder to get a buy-to-let mortgage
The buy-to-let mortgage market is confused now. It’s becoming harder to get a mortgage, yet there is more competition to lend to property investors. New loan applications have fallen, but remortgage applications have increased. Consequently, buy-to-let mortgage rates have fallen to near record lows.
Mortgage brokers have reported that remortgage applications and remortgages written have increased as a proportion of the buy-to-let mortgage market. The NLA says that this is because landlords are refinancing to reduce their exposure to the new buy-to-let tax rules.
According to the NLA’s latest Quarterly Landlords Panel, 43% of buy-to-let landlords have found the process of getting a mortgage is now more difficult than it was in January. More than half said that they already must provide more evidence than before to support their mortgage applications – and this evidence includes tax returns, business plans, and cash flow forecasts.
Review your portfolio now and take action
The government has taken a populist view and introduced measures to tax buy-to-let landlords as much as possible. Call me a cynic, but it appears that property investors are the new drivers – the easy target to raise money. However, if you plan wisely, it is possible to limit your exposure to buy-to-let taxes.
It may be that you should consider holding property in a different structure (by setting up a limited company to invest in property, for example). You might be best advised to transfer some property into the name of a spouse who pays tax at a lower rate. There are many options and strategies available to you. Many may involve remortgaging. It’s imperative that you act quickly before the government and regulatory bodies make it harder to do so.
You have until 30th September before the PRA’s latest buy-to-let mortgage underwriting standards come into force. If you are considering remortgaging – either to lock in low rates or as part of a wider reaching portfolio strategy – you shouldn’t delay.
Contact one of the Ezytrac team today on +44 01522 503 717, and discover how Ezytrac takes the strain out of managing a property portfolio.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA