Since 2017 the banks have been encouraged to apply new procedures when processing applications from what are known as ‘portfolio landlords’.
So what is a ‘portfolio landlord’?
The definition of “portfolio landlord” is someone who owns 4 or more mortgaged properties.
By the way it doesn’t make any difference if these properties are owned in your name or a limited company. So, for example, if you own 2 in your name but 2 more in a limited company (of which you are a director/shareholder) YOU are deemed to own 4 and are a portfolio landlord.
If you own 1 in your name and 3 in a limited company you are deemed to own 4. If you have 3 in your name and 1 in a limited company, you are deemed to own 4. I’m sure you get the idea.
For tax purposes you and your limited company are treated as separate and distinct. But not for the purposes of mortgage lending.
If you are a ‘portfolio landlord’ lenders are being encouraged to look at your portfolio as a whole when deciding if they should lend to you on a specific individual property. Basically you need to make a case for the new loan in the context of your entire “rental business”, not just the property you’re buying.
Tying this back to stress testing, for example, The Mortgage Works (Nationwide) will stress test your whole portfolio at 145% with a notional interest rate of 4.5% if you have between 4 and 10 properties, but will stress test at 145% and 5.5% if you have 11 properties or more.
And particular lenders may also want to see a particular level of LTV across the portfolio as a whole – like 70%, or 75%.
Every lender can decide what they want to see in order to decide whether your portfolio and rental property business can sustain another property (loan), but Prudential Regulation Authority (PRA) at the Bank of England suggest they request and consider:
– Property portfolio spreadsheet
– Cashflow forecast spreadsheet
– Income and expenditure spreadsheet
– Business plan
– Three months’ bank statements
– SA302s and tax overviews from HMRC
– Tenancy agreements for all properties
Written like that, that can look like a daunting list.
But if you think about it you should probably have that information available for yourself anyway so that you can run your business.
Also, your mortgage will have a lot of this information anyway, although he or she might have to come back to you to update it when you make an application, if they can’t fill in the gaps themselves.
And, not every lender will want ALL of this information.
Having said that, when the PRA first mooted this, many banks said, “Well we’re already asking for this information anyway”.
So, for many portfolio landlords, the practical effect may well be limited, because your lender may well have asked for this information anyway as a sensible part of their due diligence.
But, in some instances it could mean slower applications and a longer period of time until draw-down if it means that a lender is now asking for additional information (over and above that which they would have asked for previously).
There’s also the possibility of more loans being declined because there’s more that a lender could decide they don’t like about your business. But chances are if you get a decline, you would probably have had a decline before anyway, but the bank might have attached it to a different ‘excuse’.
BUT it’s yet another measure that will deter amateur landlords…which could mean greater opportunity for investors who are serious.
If you are looking for finance and you’d like me to introduce you to my (very good) mortgage broker, please email me
thepropertyteacher@gmail.com
Here’s to Successful Property Investing.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
https://www.ThePropertyTeacher.co.uk
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
For more details please go to:
https://www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop
