Do you own more than one investment property? If so, re-mortgaging them is probably about to become a lot harder. New directives issued to the UK’s banks and building societies last year by Bank of England branch, the Prudential Regulation Authority, specifically targeted ‘portfolio landlords’ who own four or more investment properties and operate outside of a limited company structure. They mean tightened requirements that require the whole portfolio to be assessed rather than just the property a re-mortgage is being applied for. Until now approval criteria were based solely on the financials of the property being re-mortgaged.
When the new rules were introduced last year, there were industry fears that the changes would see smaller lenders give up on the buy-to-let mortgage industry as a result of the increased work involved in assessing re-mortgage applications. This would mean that buy-to-let investors could struggle to access re-financing products. To at least some extent this has proven to be the case. Even Santander, a major high street bank, has stopped offering re-mortgaging products to private portfolio investors affected by the new rules altogether.
Investors with larger portfolios of investment properties are facing issues getting the same loan-to-value from mortgages as they did prior to the rule change. This can mean, in more extreme cases, landlords become effective prisoners of their existing lender. So what can you actually do if you are a portfolio landlord faced with re-mortgaging challenges?
1.) Shop Around
It’s definitely harder but unless your investment properties portfolio is a significant distance away from meeting lending criteria, you should still be able, with some effort, to find lender willing to take your portfolio or individual properties on. It may mean paying more than you would have a year ago but if you are a few years into a mortgage you could still get a better rate than with your present lender.
2.) Find a lender that ‘top slices’
Some lenders are getting around the new restrictions by ‘top slicing’. This means they take other income into account if rental income across the whole property portfolio doesn’t meet lending criteria.
3.) Adjust your portfolio
If you are really struggling to re-finance it might be a sign that your buy-to-let portfolio, and wider finances, genuinely aren’t up to new lending criteria stress tests. This could be an indication that it is time to sell the properties in the portfolio that are causing the problem. In parts of the UK, particularly in London and the South East, markets are not quite as healthy as they once were but even so, unless you own properties in prime London, you should still get a good price. It might be a good time to consider selling up and reinvest in properties that provide a better rental return ratio.
4.) Move to a Limited Company Structure
Whether a limited company structure is the better, or at least comparable, way to hold your portfolio really depends on your portfolio and wider financial circumstances. There are pluses and minuses. But it’s worth looking into, or re-examining. Doing so might open new doors when it comes to re-mortgaging.