The Prudential Regulation Authority, (PRA) have been explicit in the fact that they feel mortgage lenders should be underwriting portfolio landlords in a very different way to those with just a couple of properties.

They have made a series of recommendations that lenders must adopt by 30th September this year. This includes: –

• Ensuring all lenders check landlords’ incomes properly
• Additional Stress Testing should take place to check affordability in event of interest rates rise
• Consideration should be given to the following costs where the borrower is responsible for payment: management and letting fees, council tax, service charge, insurance, repairs, voids, utilities, gas and electrical certificates, licence fee, ground rent and any other costs associated with renting out the property
• For portfolio landlords, defined as those with more than 4 mortgaged Buy to Let properties, (not including your main residence), lenders will be expected to assess the borrower’s experience in the market including their full portfolio of properties, assets and liabilities and the merits of any new lending in the context of the investor’s existing portfolio

So, what do the new underwriting rules mean for portfolio landlords?

Portfolio landlords have officially been defined as those who own 4 or more mortgaged properties, (not including your main residence).

Those applying for a mortgage after October may be in for a shock in terms of the amount of paperwork that lenders are going to require to assess their application as it is no longer going to be a case of just assessing the security property itself.

A full summary of what lenders will ask for:

1. Details of personal or alternative sources of income and associated Tax Returns

This is a major point, specifically in providing lenders with full tax returns for the properties. Making sure you fully disclose and pay tax on the income derived from your property portfolio is a must and anyone who does not will find it difficult to borrow. Furthermore, lenders who spot inaccuracies will have a duty of care to question the landlord and potentially report this to HMRC.

It is therefore imperative that landlords get their tax affairs in order quickly and utilize advice from a properly qualified accountant and not just a part-time book keeper.

1. Detailed Portfolio summary

Landlords are going to have to provide a full spreadsheet of all their properties which will include more than the standard Property Value, Rent Received, Mortgage Amount and property address provided now. It should also include columns on costs associated with the property, for example service charges, ground rent, lettings agent’s costs, insurances etc.

Lenders will assess each portfolio on its merits to determine whether or not the current portfolio is breaking even and some may go further to spot check a property or two. They will need to be comfortable that adding to the portfolio is the right thing to do.

The issue here is that this becomes a very grey area that will differ substantially from lender to lender meaning a quick Agreement in Principle from a lender will be a thing of the past.

Some lenders for example may decline anyone who has an HMO or Student Let in their portfolio as it is not something they feel comfortable with, whilst others will be much more relaxed.

1. Asset/Liability Statement

1. Commentary on any perceived geographic concentration risk

1. Cash Flow Projection

1. Business Plan and commentary