Aldermore is a key lender in the buy-to-let market, uniquely marketing their financial products to corporate landlords that are limited companies.
They also offer buy-to-let mortgages to individuals and other legal entities, however, they have recently focused on how they are going to implement the new Prudential Regulation Authority regulations to corporate landlords.
New Regulations Since January 2017
Aldermore has been proactive in implementing the new regulations as they became effective in January 2017. The regulations are being gradually implemented most likely to allow brokers, financial advisors, and even professional and corporate landlords time to adjust.
The regulations now require stricter criteria when lending for buy-to-let. The regulations, however, are now quite specific about buy-to-let landlords and specifically portfolio landlords. According to the PRA (Prudential Regulations Authority), portfolio landlords are those that have four or more buy-to-let mortgages within their property portfolio.
Mortgages against personal homes, holiday lets, commercial, mixed-use property, and second homes are excluded from these criteria. However, where property is held within a limited company where a borrower owns 25% or more of a share, this is included as a portfolio landlord.
Additional Documentation Requirements
There has always been a requirement to produce documentation when applying for a buy-to-let mortgage. The regulations are now quite clear about the requirement to produce even more documentation.
The borrower’s full business plan and complete details of the borrower’s current portfolio are also required. Although the requirement means that there will be more “paperwork”, digital or otherwise, Aldermore is making the effort to streamline the process for their clients.
Aldermore has provided templates that are easy to use and understand and contain all the straightforward questions that cover the information that is required under the new PRA regulations.
The borrower is asked to provide information relating to the proposed security and their entire portfolio for the following twelve months. These templates are not tick-box solutions, and the questions should be carefully considered when the template is filled out.
The underwriters at Aldermore will be taking particular note of these answers not only to fulfil the new regulations but also to ensure that they are lending responsibly and securely. As the newer regulations come into effect in October 2017, more lenders are expected to take on the approach that requires templates to be completed, easing the requirement for additional information on both borrowers and lenders.
Cash Flow Forecasts and Asset & Liabilities Statements
Most lenders are expected to require a cash flow forecast, supported by a complete statement of assets and liabilities. Aldermore will require both a statement of assets and liabilities and a cash flow forecast when the borrower has eleven or more mortgages on buy-to-let properties with them.
An entire portfolio review will now be expected including at background properties. This will include properties that have been mortgaged with other lenders. Overall, this exercise will become one of affordability and risk, a task that has now become a requirement under the new regulations.
Additionally, Aldermore will include a closer look at calculating a weighted interest cover ratio for the entire portfolio based on single units in individual names – 145%, single units in company names -125%, HMOs in individual names at 185%, and HMOs in company names at 155%. These will all be applied with a stress rate of 5.5%.
Because the properties are reviewed in aggregate, if one property doesn’t quite work out in the calculation but another has the surplus value to cover it, Aldermore will consider lending. However, if across the board the figures don’t add up then the risk will be too high and Aldermore will not lend.
It is important to remember that this is the approach of Aldermore. They have been transparent in their approach in light of the implementations of the new regulations and, in time, other lenders will also offer their approach to providing buy-to-let mortgages in the light of the new regulations.
With the implementation of the new regulations already underway, it is now obvious that corporate and individual landlords alike are going to need to consider expert and unbiased advice when seeking new mortgages or when they want to remortgage. The regulations are fully implemented from October 2017, and compliance will affect both the landlords as new borrowers and lenders.
Obtaining the third-party advice is likely to become the turnkey solution for not making any mistakes in the process. If you have any questions about this topic or would like to make an enquiry about buy-to-let financing, please contact us at your convenience.