Property investors currently in the process of tying up new mortgage deals face the prospect of a busy summer ahead of fresh lending rules set to come into force this September.
In an effort to more tightly monitor lending in the UK property sector, the Prudential Regulation Authority (the UK’s financial services regulatory body) is set to force lenders to change the way they provide funds to landlords.
Under the new rules, lenders may have to look at a landlord’s entire property portfolio to check it is viable when deciding on a mortgage for a single property. In practice, that means investors with larger portfolios (said to be four or more properties) who have some rentals that are notably more profitable than others could theoretically be prevented from accessing further funds unless they can robustly justify the overall health of their portfolios.
Although lenders will continue to look at each application on a case by case basis, it seems likely that some will apply more stringent guidelines than others as to what is deemed viable.
Going forward, the new rules also mean lenders may want to see proof of rental income and a business plan before they decide on an individual mortgage application.
While this will add to the administrative burden, the new regime also presents a good opportunity for investors to review the health of their portfolios and plan future purchases around the guidelines.
Of course, it remains to be seen just how profoundly landlords and the wider market are affected, but those currently in the process of choosing between different mortgage options should certainly be mindful of the looming deadline.
What’s more, those with a wide variance in the profitability of individual properties within their portfolios will also be keen to see further guidance from the PRA and lenders alike on what exactly constitutes this notion of viability.
We watch this space with interest…