Oxford Landlords – inform yourself about the new Buy to let mortgage lending guidelines

Oxford’s buy to let investors with multiple properties in Oxford alone could risk being turned down for future mortgages under the restricted guidelines being introduced in two weeks’ time.  Many Oxford landlords are unaware of the changes being introduced and may be well advised to consider remortgaging before the new rules come into force.

The new Prudential Regulation Authority (PRA) guidelines to mortgage lenders apply to those borrowers with four or more buy to let properties anywhere in the UK.  In future, Oxford’s ‘portfolio landlords’ - will have to show full financial information for every property in their portfolio, rather than simply providing top-line profits. 

What this means in practice is that, among other factors, lenders will look at the equity in each property, individual rental profits (‘yields’) and the geographical spread of a portfolio i.e. the extent to which the portfolio is exposed to just Oxford’s local property markets rather than Oxford and other markets with different market characteristics? The changes seem likely to make borrowing additional funds more time consuming, especially for Oxford landlords with larger portfolios just imagine having to assess forty properties individually when trying to refinance mortgage debt. It could also result in some of Oxford’s landlords being turned down for new finance even though their portfolio is unchanged from when they last raised finance. This seems likely to be especially the case where the landlord is heavily mortgaged or overly exposed to the Oxford market alone.

Because each lender has been allowed to interpret how the new requirements should change their lending processes, there is growing concern in Oxford’s buy to let community over the implementation of the new guidelines and the extent to which lenders are prepared and how consistently the new guidelines are introduced.

The changes, which aim to ensure Oxford borrowers are not over-exposed if economic conditions deteriorate, or if the local market stalls, build on ‘stress tests’ recently introduced by lenders who now demand rental income meets at least 125 per cent of mortgage costs. Lenders also already check that borrowers can afford to repay the loan regularly even if interest rates soar to 5.5 per cent.

Portfolio landlords in Oxford like their counter parts elsewhere are being targeted by the PRA because it has found that arrears rates increase as portfolio size increases. I expect the impact of these changes for Oxford’s portfolio landlords to mirror the impact of the 2015 Mortgage Market Review for owner-occupiers.  Mortgages will be tougher to secure particularly for landlords who do not prepare in advance and/or are solely exposed to Oxford property. Buy to let landlords whose portfolio is geographically concentrated risk being turned down for future finance, and should use the next two weeks to speak with their mortgage broker about refinancing, to understand the new approach, and possibly to secure new funds under the current lending assessment processes.

As mortgage interest rate relief is progressively phased out over the coming 3 to 4 years, and with the Bank of England providing clear direction that interest rates will most likely rise this calendar year, it is important that Oxford landlords do all they can as early as possible to reduce the cost of finance to off-set the increased costs impacting their business.