Remortgage now to avoid PRA rules from September?
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by Readers Question

A week ago

Remortgage now to avoid PRA rules from September?

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Remortgage now to avoid PRA rules from September?

I only have 4 properties, but fall into the ‘portfolio landlord’ category. The interest only mortgage on one expires in the middle of next year. I have approached the NLA mortgage team and found I can remortgage to Kensington, Paragon or Aldermore, albeit with a monthly increase of £80 – £100. (All mine seem to be on very low SVRs!)

The rental income easily stacks up, so no problem there, and the tenants are my tenants from heaven, having rented the house since 2010 and never missed a payment. One lender requires proof of 12 months rental payments on ALL the properties (which is no problem), but none so far are asking for personal income and expenditure details.

My choice is a bit limited, because I’m in my 60s and not all lenders are happy to lend beyond retirement. I also have a personal loan and credit card balance, which are easily affordable, but will I fall foul of the the tightening of the rules if I wait until next year to remortgage?

I’m even thinking I may have left it too late to avoid the new rules, if the process takes a few weeks?

I haven’t mortgaged/remortgaged for about 10 years so I’m having to get up to speed on the latest regs!
Any advice, and also any broker recommendations, would be welcome.

Thanks in advance:)

Annie

Comments

Neil Patterson

A week ago

Hi Annie,

First of all please only act upon the advice of the regulated, qualified and insured broker from the NLA as only they will have been able to conduct a full fact find on your circumstances and carried out a whole of market search.

However, I had a similar scenario a couple of years ago with my personal mortgage. The new MRA rules about affordability were due to come in and I wanted to extend the term of my mortgage and convert to repayment. Being self employed this would have been very difficult post MRA so I made sure I converted with my existing lender to give me peace of mind.

It may cost a bit more now but as long as you can afford the payments I would say it is way more important to secure your lending and long term plan now rather than find you have a problem later and cannot secure further extended terms. This could mean forcing you to sell and pay CGT etc., which could be very costly.

Personally I am a safety first belt and braces kind of guy.

denis knockton

A week ago

Hi Annie.

Lenders have already started applying the new rules and certainly not waiting until 1st October. In my experience they have been using any application made since last Spring as a trial run to train their staff and get up to speed. So, I am afraid when you make your application now, you will find that they will ask to see bank statements, and depending on the lender ASTs for all the other properties you have mortgages on. They are not yet asking for cash flow and business plan but info. that is readily available such as mortgage statements for each property is asked for.

If you have any high rise above 11 storey, most up to date Fire Risk Assessment reports are asked for and the valuers value depending on the findings in the report. I had a valuation a month ago, the valuer is still hesitant to value the property even though the property has no cladding. The bag log of reports arriving means valuation reports are taking ages to come back on high rise.

If you are making an application on your company, they want to see the details of the personally owned properties as well!

I have been told that most lenders are now working on business plan and cash flow templates they will ask applicants to fill in. Larger brokers are also coming up with their own templates to assist their clients if the lender does not have a preference.

Brokers are encouraging people to make their applications before the PRA rules kicked in, but the reality is that they already have and there is a huge amount of info. lenders are demanding to see which also means the process is taking longer than usual. Allow yourself plenty of time.

You say you have personal debts/credit cards. Ensure all insecure debt is in order and any credit balances are emphasised in your application as buffer. They scrutinise every thing with a fine comb. If you can back up anything they ask with a documentation, you will be fine.

Good luck!

Annie Landlord

A week ago

Thanks Neil and Denis for your comprehensive replies. I hold all 4 (standard family homes) as a sole trader and not in a Ltd company. All paperwork is up to date, as are all rents and mortgage payments and all have long term tenants (between 5 - 8 years) Interesting point you make Denis about emphasising credit balances as a buffer. I have about £30000 of unused credit on my cards. The limits are quite high! I shall be contacting NLA again tomorrow but also intend to give Property 118 and Property Tribes mortgage people a call. Hopefully I will get this one sorted. The next mortgage expires in 2023, and who knows what the industry will look like then!
Thanks again.

H B

5 days ago

Anne,

If your properties are low LTV and and your rent easily covers the mortgage, you should not have anything to fear from this part of the legislation. It is designed to weed out those whose business would not be viable if interest rates rose.

Annie Landlord

5 days ago

Reply to the comment left by "H B" at "22/07/2017 - 12:41":

Thanks for that HB. The rent to mortgage ratio is very favourable but the LTV is high. I have also contacted a couple 'we buy any house' type people to see what they would offer. I have read that the new rules re personal income don't apply to remortgages where there is no capital raising. I guess though, any lender can ask for any info they want

Reply to the comment left by "Annie Landlord" at "22/07/2017 - 15:10":

Dear Annie, we were remortgaging recently one of the properties, as well as doing some remortgaging last year.
We had to provide everything: not only on a personal level but ALL mortgage statements for all properties, a spreadsheet with all figures and data relating to each property (we have 5 so we are on a small side). There is a huge Fact Finding document - 'conveniently' provided as a pdf, so we had to convert to Excel to be able to deal with that. You need to fill in all your income and expenses, divided to a number of categories. So far the only question missing is a size of your underwear (!), otherwise be prepared to factor in your monthly hairdresser cost as well as that beauty cream you bought on impulse at Boots! Seriously - "beauty treatments" is a position asked!
It was ridiculous and Countrywide (our broker) started expecting that level of details since 2015. We had also to provide projection for the next year. So far no business plan & cash flow was expected. Minimum joint income (not from properties) - £25K. I think Denis Knockton mentioned earlier that is in preparation for September. Takes ages to fill in.
What is a real worry - the banks may start thinking it is far too much details to deal with and may start withdrawing BTL products due to that sheer amount of work they have to do from September. I think NLA voiced a similar concern somewhere on their website.

Annie Landlord

5 days ago

Reply to the comment left by "Whiteskifreak Surrey" at "22/07/2017 - 15:36":

I had heard the documentation was pretty onerous! One of the lenders I'm looking at doesn't have a personal income criteria, but the other one does. As these new arrangements will take so much more time to process I can see arrangement fees rocketing! Or, as you say, some lenders may think btl is no longer viable for them.

David Mensah

5 days ago

Hi Annie,

I'm having the same issues as you, but remortgaging a property we just fixed up (and so added 350K of value to).

My banker is claiming the new rules came in in July, but what I have now realised is that that is an internal bank policy because they want to get everyone up to speed by Sept. So effectively the rules are already in place.

Everything has slowed down because bank staff are nervous, or at least that is the impression I am getting.

Also, be prepared to be asked an enormous amount of detail. If you have a portfolio, this can be plenty complicated, and even harder for bank staff, who are not trained accountants, to understand.

Also note that because affordability now also includes tax liabilities, which will change post S24, they are also asking me for lots of tax info.

All a huge pain and I am wondering if this is part of a gov't strategy to slow down the BTL market.

I also wonder if in future we may need to rely on our accountants to do some of this prep work for the banks?

Curious what the mortgage professionals make of this.

Annie Landlord

4 days ago

Reply to the comment left by "David Mensah" at "22/07/2017 - 19:41":

Hi David, I agree its probably another strategy to decimate the small landlord btl businesses. I don't mind providing all the information necessary, and I am fairly risk averse, so I haven't overstretched myself by any means. I am concerned, however, because my own desktop valuation suggests that the property may not value up to the original purchase price, so I may not be able to remortgage for the amount I need. I can only see the situation deteriorating further and further for small portfolio landlords, and to be honest, I have better things to do with my retirement, so I am looking to sell up over the next few years. I have an unencumbered holiday let property abroad that performs very well and I think I may transfer all my energies into that market as soon as I can. I hope you get your remortgage through!

H B

4 days ago

Annie,

When you say that your mortgage term expires, do you mean the entire mortgage becomes due for repayment or is just that the fixed period ends and that you will revert to SVR?

This could impact on whether you can take advantage of any remortgage exceptions in the rules, although the PRA seems to have written this in such a way that even the exception for remortgaging is not that helpful.

You also mentioned that you have a fairly high LTV - do you know what it is? Beyond 75% you might find remortgaging difficult, although a smaller number of lenders will lend above this.

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