PRA New Buy-to-Let Underwriting Requirements

Thursday September 28, 2017

PRA New Buy-to-Let Underwriting Requirements

As of 30 September, the Prudential Regulation Authority (PRA) are introducing new underwriting standards for buy-to-let (BTL) contracts. This includes bespoke standards for “portfolio landlords” – defined as those with four or more properties.

The Changes The new standards are designed to reflect the differences between simple and complex buy-to-let (BTL), the latter of which involve cash flows and costs arising from multiple tenancies. If a customer falls within the definition of a portfolio landlord, it must be proved whether they can sustain their buy-to-let investments in order to obtain a mortgage. As a result, a customer will be expected to provide the following information to the lender:

  • Evidence of their experience in the BTL market and their full. portfolio of properties and outstanding mortgages.
  • Evidence of their assets and liabilities.
  • Merits of any new lending, together with a business plan.
  • Historical and future expected cash flows associated with all of the customer’s properties.

Lender Requirements The PRA have also outlined their requirements for lenders when assessing the affordability of a BTL contract. An interest coverage ratio test and / or a detailed affordability test will be required. Lenders will also take likely future interest rates into consideration. Lenders have adopted a fairly wide range of methods to deal with the regulatory changes. Therefore, it’s important that you’re fully aware of what is required for the lender in question.

More Information

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