Many buy-to-let investors have not been made aware of changes by the Prudential Regulation Authority affecting their ability to borrow money. The National Landlords Association has criticised mortgage brokers and other lenders for failing to keep landlords informed about the PRA changes for buy-to-let mortgages. The NLA says that more than half of all UK landlords are still not aware of the framework. Its research shows only 8% of landlords said their lender had contacted them about the changes and 16% said their broker had been in touch. About 68% of buy-to-let landlords said they had not been contacted by either their lender or broker about the changes. It could be that the mortgage lenders and brokers have concentrated on contacting landlords with larger portfolios, as 26% of portfolio landlords have been contacted by their broker and 9% by their lender.
NLA CEO, Richard Lambert, said the changes to PRA will greatly affect landlords’ ability to source new finance and, therefore, to carry on providing quality and affordable housing to those who need it. He said he hoped that the reason why so many landlords had not been contacted about the PRA changes was because their existing financial deal was not close to expiring. However, Mr Lambert felt that it was in the best interests of lenders and brokers to contact landlords about these changes as soon as possible. Otherwise, he felt it could be a missed opportunity as far as new business is concerned. He added that landlords need the right support and information about how these PRA changes will affect their existing loans. It could mean that they face higher finance costs which they cannot afford to absorb.
The PRA changes affect the way in which applications for portfolio landlords for buy-to-let mortgages are underwritten. A portfolio landlord is defined as one with four or more mortgaged buy-to-let properties. Any borrower falling into this category will have to have specialist affordability checks carried out by their lenders to comply with the PRA. Lenders will take the entire buy-to-let portfolio into account when looking into mortgage applications. They will look at areas such as a landlord’s experience in property investment, the total amount of mortgages across all properties, assets and liabilities, past, present and predicted cash flow from the portfolio, and income made from property and other sources. Landlords will need to have an up-to-date spreadsheet for their property portfolios, a business plan, three months’ bank statements, tax returns, income and expenditure, and cash flow forecasts when submitting an application.
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