Why getting a loan will be harder for landlords

Anyone with four or more homes may be barred by banks

LANDLORDS who have four or more properties could find it impossible to get a mortgage under tough new checks by banks.

Money Mail can reveal that three lenders — Santander, Principality BS and Platform, a subsidiary of The Co-operative Bank — have stopped accepting mortgage applications from landlords with this number of houses as a result of new rules being introduced by the banking watchdog.

From September 30, lenders will have to carry out stricter checks on landlords who have these big portfolios.

At present, most banks and building societies assess a buy-to-let application based on the rental income and value of the property they are lending against. Under the changes, every time a so-called portfolio landlord applies for a new loan, or refinances an existing one, they will be grilled in detail about all the properties they own, including how much rent they charge and the size of their loans.

Around 11 pc, or 210,000, of Britain’s 1.9million landlords have four or more properties, according to UK Finance, the trade body for banks.

But the rules affect only those with mortgages, of which there are around 100,000.

Some banks have already tightened their criteria and are turning borrowers away.

Many are insisting landlords charge more rent and put down bigger deposits in order to protect themselves financially should their tenants fail to pay.

Others are refusing mortgage applications if landlords have owned their buy-to-let properties for less than two years in a bid to weed out those with little experience of running big property portfolios.

Some lenders have hiked their minimum salary requirements and are even demanding landlords provide a business plan to prove they can afford a loan.

David Hollingworth, of mortgage broker L&C Mortgages, says: ‘It’s pretty clear that landlords with multiple properties are going to find it much more difficult to get a mortgage. What is worrying is that this could force landlords to increase their rents. That will be very painful for their tenants.’

It is yet another blow for landlords, who have been hit with two big tax hikes in the past year.

Since April last year, landlords have had to pay an extra 3pc stamp duty on top of the ordinary rate when they buy a new home. On a £250,000 property, they now have to pay £10,000 instead of £2,500.

On top of this, a perk which allowed landlords to claim tax relief on their mortgage interest is gradually being removed over the next three years.

Fewer landlords are already investing in buy-to-let as a result of the changes because it just isn’t profitable.

Now experts fear the tough new lending rules will force lenders to ditch buy-to-let, leaving a dearth of options for landlords, particularly those with big portfolios.

Britain’s biggest buy-to-let lender, BM Solutions, part of Lloyds, is asking portfolio landlords to collect more rent from tenants and insisting they earn at least £30,000 a year.

Small landlords with a couple of properties must ensure their rent is at least 125pc of their total mortgage payments.

Landlords with four or more mortgaged properties must collect 145 pc, or £1,450 if their mortgage payments are £1,000.

The Mortgage Works, a subsidiary of Nationwide and Britain’s second biggest buy-tolet lender, and Skipton BS are also forcing landlords to ask for more rent.

The Mortgage Works will insist big portfolio landlords charge at least 145pc of their mortgage payments, while basic rate taxpayers with three or fewer buy-to-let mortgages must collect 125 pc.

Skipton BS will only lend to portfolio landlords who earn at least £45,000, although rental income from other properties can be factored into the application. The minimum salary for smaller landlords is £20,000.

Its minimum rent requirement for borrowers is 150 pc of the mortgage, or 145 pc for smaller landlords.

Accord Mortgages, part of Yorkshire BS, is asking landlords to charge at least 135 pc of their mortgage payments in rent to qualify for a loan. So, in theory, if you charge 125pc of your mortgages in rent on three properties, you’d have to charge 165pc on the fourth property to meet its new requirements. Experts fear landlords with properties in high-rent areas won’t be able to charge more, and so won’t qualify for a loan. OneSavings Bank will require landlords with more than three mortgaged properties to provide a business plan, a statement of assets and liabilities, and a cash flow statement to prove they can afford a loan.

David Whittaker, of buy-to-let broker Mortgages for Business, says: ‘These rules are a potential minefield for landlords with four properties or more, so it’s important you get advice.’