October 2017 has seen changes to the way buy to let mortgages are approved. Legislation has tightened, and landlords must now be able to prove that their whole property portfolio is sufficiently robust, not just the property they’re taking a mortgage against. The new criteria apply to all landlords with more than four properties in their portfolio, whether they operate as a private individual or a limited company.
Your portfolio is only as strong as the weakest property
Jay Yehia, estate agent at Henry Wiltshire Royal Docks, can see just how important this change will be for landlords. “The main change for landlords is that they’ll no longer be able to use properties that are performing well to shore up those where there are problems. If landlords have four or more properties, each property will have to be able to take the strain of the new BTL mortgage. If a landlord has just one property that is underperforming, he will be unable to get a BTL mortgage or remortgage.”
Will your London rentals and mortgage repayments stand up to the stress test?
Another new aspect of BTL mortgages is stress testing. This is where the rent for a property is measured against mortgage repayments, questioning what would happen were interest rates to rise. If you had to pay 5% more on your mortgage per month, would the rent you’re charging still allow you to meet the payments? You must still be able to command 145% of your mortgage repayment if it increases by 5%.
What evidence do you need to secure a BTL mortgage from October 2017?
Landlords will have to prove that they can take on a BTL mortgage or remortgage, and will have to produce more evidence than in former times. Landlords will now have to show:
- Tax returns
- Cash flow forecasts
- Tenancy agreements and bank statements for each property
- A portfolio summary showing property values, existing mortgages, payment schedules and rental values
- A ‘business plan’ outlining future investments
Letting property in East London
With the tightening of legislation, it’s more important than ever that you work with a conscientious London lettings agent who will help you meet the criteria and get the best return on your investment. Jay and the team at Royal Docks are experts at letting property in East London and can support you through the whole process – give them a call today on 020 3696 9616.