Landlords with four or more buy-to-let properties will see their borrowing costs jump in 2017 as new affordability “stress” tests come into force, experts have claimed.
The tests will replace the current arrangement in which mortgage providers evaluate buy-to-let loans on the basis of whether an individual property will generate enough rent to cover mortgage costs.
From September 2017, lenders will be forced to review the viability of loans based on an investor’s entire portfolio, creating extra costs and potential pitfalls during the mortgage process.
Ray Boulger, technical manager at mortgage broker John Charcol, said: “Lenders will have to spend significantly more time underwriting the application because they will have to look at the landlord’s total portfolio and assess their asset and liability situation in the whole.”
In effect, the changes mean that landlords with expansive portfolios would be forced to cover the additional costs of due diligence.
“They might have to pay a quarter or half percentage point more for their mortgage,” Mr Boulger added.
The new affordability tests were announced by the Bank of England’s Prudential Regulation Authority in September this year.
The regulator said that when defining landlords with a large portfolio, “existing debts across all lenders [should be] considered to ensure that borrowers with multiple buy-to-let mortgages across different lenders were also underwritten according to prudent standards.”
It argued that mortgage arrears rates are higher when landlords take on successive properties.
The staggered removal of higher rate tax relief on mortgage interest payments over the next few years was another factor, the PRA said.
“For portfolio landlords, who are not set up as limited companies, this additional tax burden will be considerable and so a portfolio view becomes even more relevant for new borrowing,” it said.