Contacted by MX Bradford and Bingley about S24!

Hi Terry,

You are a bit behind so you probably need to start with these articles below and I would avoid contact with MX unless you are forced into it!

>> https://www.property118.com/tax/

>> https://www.property118.com/budget-2015-landlords-reactions/76164/

>> https://www.property118.com/section-24-comprehensive-report/91755/

Hi Terry

If you only have one lender, you're lucky that you're not about to be bombarded by the the rest too!

As an independent mortgage broker dealing with all of the high street banks, specialist lenders, private client finance houses, bridgers, P2P's and pension property funders too, my office is drowning in this new swathe of correspondence.

Why? .......

The Prudential Regulation Authority (PRA) statement which impacts on all UK regulated BTL lenders is a massive upheaval and sweeping change to the way rental income calculations are carried out for BTL lending, how borrowers are now going to be seriously affected by reduced lending limits and therefore the consequence of leaving it too late to review and change could be seriously detrimental.

Many landlords are now considering (or implementing as we speak) alternative ownership strategies and options, hence the suggestion to also speak with a specialist tax adviser (not any ol' accountant will do I'm afraid) .

Not everyone is affected though. Please read the summary insight below;

Following consultation, the finalised supervisory statement has now been issued. The requirements seek to ensure that firms conduct their buy-to-let business in a prudent manner. They aim to prevent a marked loosening in buy-to-let underwriting standards and to curtail inappropriate lending and the potential for excessive credit losses.

The requirements affect all lenders that are regulated by the PRA that do BTL that is not regulated by the FCA for example Consumer BTL or Family BTL.

The main points to note are as follows:

• Affects UK property only where more than 40% is a residential dwelling
• Includes mortgages arranged in either a personal or Limited Company name
• New minimum affordability standards – rent calculations
• Specialist underwriting approach for portfolio landlords (4 or more properties)

Exclusions from the requirements

• Semi – commercial property
• Commercial property
• Developments
• BTLs of less than 12 month terms e.g. Bridge
• Like for like BTL remortgages (fees can be added)
• Residential consent to let arrangements
• High Net Worth individuals (£300k income or £3m net assets)
• Capital raising for business purposes, but investing into a BTL is not classed as business purposes
• Holiday Lets
• Fixed rates with a 5 year or more term

Specialist underwriting

For portfolio landlords, lenders are expected to consider the whole of the portfolio and not just the subject property, using a specialist underwriting approach. During underwriting, lenders are asked to consider:

• Overall portfolio LTVs
• Other Assets and Liabilities
• Tax liabilities
• Merits of new lending within the business plan

Rental calculations

A more prudent approach to rental calculations needs to be in place. This has been specified that rental calculations should assume interest rates at a notional 5.5%

On top of that, lenders should factor in costs for running the portfolio such as:

• Management fees
• Voids
• Future tax bill increases
• Council tax
• Service costs
• Repairs

Lenders are being left to interpret their own margin, but we have already seen some lenders such as TMW set this at 145%.

Clients and brokers should expect to see a greater scrutiny of exiting portfolios, so accurate information such as property values, rental incomes etc must be a top priority

Not all BTL lenders come under the PRA, so they may still offer a more flexible approach. Also, rates that are fixed rates for 5 or more years, because of the security these offer, are excluded from the increased requirements, hence the increase in the availability of these products

Brokers are being asked to explain these implications to customers, particularly those that capital raise regularly from their portfolios which may prove more challenging going forward.

Affordability

It is acceptable for a lender to use surplus earned income to justify affordability where there is a shortfall in rental income. The underwriting for this must be as stringent as residential mortgage underwriting and evidence of income and affordability will be required.

Timing

The changes to the rent calculations are expected to be in place by Jan 2017 and to the underwriting requirements September 2017

If you ever thought 'what is the value of using a mortgage broker', the answer now is "there has always been a huge benefit in working with a professional mortgage adviser however now, more than ever, a BTL mortgage broker is worth their weight in gold". I would say that wouldn't I? But think about the tome above. Do you know which lenders (many of whom are Broker-only access) will now say yes to you? Do you know which lenders will lend you as much as you want? Do you know which lenders will be caught in this PRA scenario and which (non-UK, therefore non-regulated) lenders will be more sympathetic? As full time, professional, experienced and expert Brokers, we do.

H D Consultants has worked very closely and very successfully with the Property118 community for many, many years.

We will be arranging 'PRA' Reviews in the new year for all of our BTL'er Clients whether you have one property, one hundred properties, in a personal or limited company name. If we can assist you, Terry, or anyone else, my Team is here to help.

Howard Reuben recently posted...HD Consultants, Awards 2014 - - Mortgage & Protection | Buy To Let | Colchester

Amazingly detailed breakdown of every current point.
Thank you for posting this