Almost three quarters of portfolio landlords are finding it more difficult to secure a mortgage following regulatory changes to underwriting criteria for investors with four or more mortgaged buy-to-let properties, new research reveals.
A study of 817 landlords by specialist lender Foundation Home Loans found that 70% of UK landlords with more than four buy-to-let mortgages said that they had found obtaining finance a challenge since the new Prudential Regulation Authority (PRA) rules were introduced last September.
As a result, 48% of landlords aware of the PRA changes think that they will slow down the process of securing a mortgage, with two thirds of those who own 11 or more properties believing that the range of mortgage products available to them will decline.
Almost a third (28%) think that the changes will make it more likely that their mortgage application will be rejected.
Jeff Knight, the Marketing Director of Foundation Home Loans, comments: “Whether these figures are to do with a natural period of adjustment or become the new norm remains to be seen.
“Nonetheless, in order to make this as smooth a transition as possible, brokers and lenders must work together to ensure things do not become unnecessarily challenging.”
Meanwhile, buy-to-let borrowing is increasingly being conducted through limited companies, as landlords look to avoid the reduction to mortgage interest tax relief that affects individual investors.
Analysis by broker Mortgages for Business, based on industry data combined with its own, found that 49% of all completions in the fourth quarter (Q4) of 2017 were from limited companies. This is up from 30% in Q4 2016.
Of the total completions, 72% came from limited companies, which bucks the trend in the wider mortgage market, where most buy-to-let activity has been for remortgaging.
The research also reveals that the proportion of buy-to-let mortgages available to limited companies rose in Q4, from 21% to just under a quarter of all products, while the average rate is now at 4.2% – more than the 3.2% average across the whole market.
The COO of Mortgages for Business, Steve Olejnik, says: “To help landlords determine whether using limited companies is the right strategy for them, we’ve been encouraging our clients to take professional advice.
“We will also continue to produce guides and webinars which explain how the tax and regulatory changes might impact their investments.”
He adds: “The landscape of buy-to- let is changing and it’s important that landlords are equipped to traverse the terrain.”