Landlord Mortgage Refinance: New Rules Could Hit Buy-to-Let Hard
Landlords looking for a mortgage refinance option beginning in the third quarter of 2017 may run into quite a bit of trouble thanks to new rules coming into force in 2017. The rules will make it tougher for landlords with more than four properties to borrow against those properties. They also mean quite a bit more work for mortgage lenders who have to verify affordability qualifications.
From 30th September 2017, landlords who own four or more buy-to-let properties currently under mortgage will have to submit detailed income and mortgage data on each of those properties in order to either take advantage of mortgage refinance or purchase a new property with a new mortgage.
Yes, you did read that correctly. If a landlord wants to refinance an existing property or buy a new one to add to a portfolio containing four or more properties, he or she will have to provide income and mortgage information on every property in his/her portfolio. The bank will then have to examine and verify all the information before deciding whether to grant the mortgage or not.
Banks Already Considering Pulling Out
When the Bank of England announced the new rules through its Prudential Regulation Authority, there was immediate speculation that banks and building societies previously friendly to buy-to-let investors might be less willing to lend due to the amount of paperwork the new rules would generate. Now it appears as though that speculation was spot on.
One expert recently told This Is Money that mortgage lenders would "find the significantly enhanced underwriting process uneconomic." He said that lenders would begin adopting the rules sometime in 2017, well in advance of the deadline, and find it is far better to withdraw from the mortgage refinance market rather than comply with the more complex underwriting requirements.
This Is Money says that some buy-to-let lenders are already restricting the number of mortgages they will offer a single landlord. For example, a bank or building society may go no higher than a couple of million pounds on no more than four or five properties. It is very likely those kinds of restrictions will become the norm for any banks and building societies choosing to continue operating in the mortgage refinance market for buy-to-let investors from September 2017.
What This Means for Landlords
The new underwriting requirements will have a very definite impact on landlords. It is believed that the rules, combined with higher stamp duty and the gradual elimination of the mortgage interest write off, will lead to landlords being content to limit their portfolios. Those with portfolios already exceeding the four-property limit for mortgage refinance are likely to think twice before adding properties that have to be mortgaged. If they cannot pay cash, some are likely to stop growing their portfolios for lack of lender support.
Landlords with much smaller portfolios will probably start thinking long and hard about going higher than four properties â?? at least until those initial four are completely paid and generating enough income to offset the higher taxes that would undoubtedly result from portfolio expansion.
Mortgage refinance has long been a good tool for landlords looking to leverage the properties in their portfolios to purchase new properties. But now it looks like that tool will be much more difficult to use in less than a year. This could further constrict the buy-to-let market, which is just what the government was looking to do when it started implementing all the rule changes. Whether this is a good thing or not remains to be seen.
This Is Money â?? http://www.thisismoney.co.uk/money/buytolet/article-3897428/Landlords-multiple-properties-buy-let-mortgage-headache.html
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