Buy-to-let mortgage lending: how will landlords be affected by changes?

As any landlord who has tried to remortgage in recent months is well aware, new lending guidelines are being put in place.

These are to help ensure landlords do not overstretch themselves and are able to afford to run their property investment in the future.

The rules may appear draconian as, in some cases, they include assessing a landlord’s personal income where previously lenders have only focused on whether the rent on a landlord’s property will cover the mortgage.

Such income affordability tests could delve deep into a borrower’s income tax, credit commitments and living costs.

Are lenders already applying the new rules?

Currently, it is being left to lenders to prepare the ground for what may soon become official rules issued by the Bank of England’s Prudential Regulation Authority.

Many lenders are already applying the new lending requirements, including so-called stress tests which work out if a landlord can afford the mortgage payments at a higher interest rate level.

It follows lenders adopting a similar approach in the residential market where strict new lending criteria have already been applied in a bid to prevent borrowers from taking out a home loan that they cannot afford.

Will the new rules apply to accidental landlords?

The industry trade body, The Council of Mortgage, has exclusively suggested to Simply Business that “accidental landlords will be assessed on affordability only when they are seeking more money for refinancing”.

It means accidental landlords who take out a buy-to-let mortgage on the same property without increasing the amount they are borrowing will avoid the strict new lending rules.

It will undoubtedly be welcomed by accidental landlords who have found themselves unexpectedly in the buy-to-let arena.

Indeed, it has been confirmed in The Bank of England’s consultation, which states: “To avoid existing borrowers being adversely affected when re-mortgaging, the expectations do not apply to buy-to-let mortgages where there is no additional borrowing beyond the amount currently outstanding under the existing buy-to-let contract.”

The definition of the ‘amount currently outstanding’ does not include any new arrangement fees or administration costs.

The CML concluded: “We support the PRA’s approach to not apply their proposals to customers who simply want to remortgage without increasing the size of their loan, so borrowers are not unnecessarily prevented from getting a better deal when their is no extra risk involved.”

Are you concerned about buy-to-let lending changes? Let us know in the comments below.

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