Tougher buy to let mortgage rules making it harder for landlords, new research shows

Tougher rules for buy to let mortgages in the UK has resulted in almost two thirds of landlords saying it is now harder to get a loan to buy a property.

The changes introduced by the Prudential Regulatory Authority (PRA) saw lenders applying an interest cover ratio (ICR) of 5.5% to all products with terms of less than five years a year ago and more stringent stress tests for all buy to let mortgages, with monthly rental income typically needing to cover 125% of mortgage repayments.

Then in September 2017 landlords with four or more buy to let mortgages were required to undergo specialist underwriting processes when seeking new loans which included even more affordability tests and 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 needing to be financed.

According to the National Landlords Association’s (NLA) latest research 63% of landlords aware of the changes believe it makes obtaining new buy to let mortgages more difficult. This increases to 70% for portfolio landlords with four or more buy to let mortgages.

Similarly, 48% of landlords aware of the changes believe it has slowed down the finance process and 46% believe the changes reduce the range of mortgage products available.

‘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,’ said Richard Lambert, chief executive officer of the NLA.

‘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,’ he pointed out.

‘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,’ he added.