Finance News

BoE Changes to Buy-to-Let Making it Harder to get a Mortgage

Em Morley - March 21, 2018

Six months after the Bank of England’s (BoE’s) latest attempt to cool the buy-to-let market, almost two thirds of landlords (63%) who are aware of the changes say it is now harder for them to get a mortgage.

The changes, which were introduced by the BoE’s Prudential Regulation Authority (PRA), were brought in in two stages last year. We have a complete guide to help you understand the changes:

The first stage, in January 2017, required lenders to apply an interest cover ratio (ICR) of 5.5% to all products with terms of less than five years. More stringent stress tests were also introduced for all buy-to-let mortgages, with monthly rental income typically needing to cover 125% of mortgage repayments.

The second stage, in September 2017, requires portfolio landlords – defined as those with four or more buy-to-let mortgages – to undergo specialist underwriting processes when seeking new buy-to-let mortgages. This includes additional affordability tests with providing supporting documentation, such as business plans. It also means that underwriters must look at the landlord’s entire portfolio when considering new applications, not just the property in question.

According to the latest research by the National Landlords Association (NLA), 63% of landlords that are aware of the changes believe that they make obtaining new buy-to-let mortgages harder. This rises to 70% for portfolio landlords.

Similarly, almost half (48%) of landlords that are aware of the changes believe that they have slowed down the finance process, while 46% believe that they reduce the range of mortgage products available to them.

Richard Lambert, the CEO of the NLA, says: “These findings show that the PRA’s changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios. Given that the private rented sector now makes up 20% of the housing market, it is vital that professional landlords are incentivised to continue providing good quality, affordable housing to those who need it. This appears to be achieving quite the reverse.

“Landlords looking to add new properties to their portfolios need to be conscious of the new requirements. We suggest talking to your mortgage broker or bank before committing to any new property.”