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  • Mortgages & Finance

    Understanding the impact of PRA on landlords



    If the PRA (Prudential Regulation Authority) is not on your landlord radar, it should be!

    It is set to be implemented on 1st January 2017 and may significantly impact the amount of money you can borrow.  Criteria will be stricter, LTV's lower, and stress tests higher!

    I caught up with Emma Cox, Sales Director at Shawbrook Bank, to gain some further insights:


    Implementation in part by 1 Jan 2017 and in full by 30 Sep 2017.

    • Affordability assessments should take into account: borrower’s costs including tax liabilities, verified personal income (where used by the lender) and possible future interest rate increases. When setting the expectations for future interest rate increases, the PRA reviewed the prevailing standards in the industry and considered the impact of changes in interest rates, and calibrated the stressed rate accordingly.
    • Lending to portfolio landlords (defined by the PRA as being those with four or more mortgaged buy-to-let properties) should be assessed using a specialist underwriting process.
    • The PRA wishes to clarify that the provision in Capital Requirements Regulation (CRR) which reduces the capital requirements on loans to small and medium-sized enterprises by around 25% should not be applied where the purpose of the borrowing is to support buy-to-let business.
    • An implementation timeline of 1 January 2017 for the more straightforward changes, and 30 September 2017 for the remainder.
    • Allowing firms to assume reasonable rental increases when assessing affordability in the context of possible future mortgage interest rate increases.
    • Excluding those re-mortgaging (and not increasing borrowing) from the supervisory statement, in a similar way to residential lending.
    • Reflecting the change to mortgage interest tax relief announced by HM Government in 2015, which has already led to several firms increasing their interest cover ratio affordability thresholds. The PRA has reaffirmed its expectation that firms should also take these new costs into account when assessing affordability.

    Here is the Document in full

    and the associated Policy statement

    The correct deal stacking calculation is now:

    Monthly rent x 12  divided by 5.5% divided by 145%

    This will show you how much borrowing the rent will support.

    For further insights, here is a round up of Property Tribes content on this topic:

    PRA issues BTL underwriting expectations 

    Tick! Tock! The countdown to PRA has started!

    PRA on steroids coming soon 

    PRA & Remortgages 

    LTV's to decrease through higher stress tests

    If you are intending to buy, or expand your portfolio, in 2017, it is vital that you take action now to ensure that you meet the new stricter lending criteria.  

    The era of the highly leveraged landlord is well and truly over.

    Property Tribes Financial Services are here to support the PT community through the changes, and can be contacted on 01206 654444.

    SEE ALSO  -        Calculation to stack deals

    UP NEXT -            Section 24 - landlords must take action now

    DON'T MISS -      Changing landlord dynamics & rent rises

    NOW WATCH: 

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    I’ve had four telephone conversations today which should have shocked me.

    Four conversations that should have been extraordinary but have been unremarkable.

    So what have we been talking about?


    “PRA? What’s that about”?

    “Tax changes? What Tax changes”?

    “Section 24”?

    “Stress testing”?


    Here we are in November 2016 and with new legislation, new policies and new rules to commence in January 2017 there are still people that don’t know what’s going on!

    Clearly the reason is obvious. The people that don’t know about these things are

    • Stupid
    • Ignorant
    • Idiots
    • Fools

    Actually these people were

    • Doctors
    • Accountants
    • Professional Investors
    • Software Developers

    Exactly! These people aren’t stupid at all. These are normally very astute, very clever, switched on and intelligent people.

    They do however share something else. They all have one common denominator. An ability to think that what’s going on “doesn’t and won’t really affect them”. Yes they’ve probably heard mention of these things and read articles in newspapers and forums but these are the people “that have had property for years” “nothing’s changed since we bought our first property” “this is all about the landlords with 100`s of properties”…………………..”ISNT IT”?


    NO. IT ISNT!!!

    THE REAL RISK? THE REAL RISK IS DOING NOTHING

    There is still time so email me, pick up the phone and do it.

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    Mr Mark Alefounder

    Mortgage & Protection Broker

    Optimum Independent Financial Advisers

    Mobile 07716 647 928

    Tel: 01206 366700

    http://www.optimum-ifa.co.uk

    The financial regulator, the ‘Financial Conduct Authority’ designates that there are two different types of financial advisers, ‘independent’ and ‘restricted’. The status of an adviser firm will affect the type of advice that is given. A restricted adviser firm can only recommend certain products or product providers, whereas an independent adviser firm, such as Optimum, is able to consider and recommend all types of retail investment products and/or providers that could best meet clients needs and objectives. Optimum Independent Financial Advisers offers genuine unbiased and unrestricted advice.

    Your home may be repossessed if you do not keep up repayments on your mortgage.

    Optimum Independent Financial Advisers is authorised and regulated by the Financial Conduct Authority

    Financial Services Register Firm Reference Number (FRN): 223293

    © Copyright 2017 Optimum Independent Financial Advisers. All Rights Reserved

    The lack of knowledge is staggering I come across it day after day

    But the reason is they have other jobs and lives outside of BTL

    but it is this section of employed Landlords who will be hit hard with S24

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    We are immersed in it day by day so we live sleep and breathe it

    Despite the internet and social media sadly many people will never be aware until it directly affects them

    Their plan will come when they get refused a mortgage or an inflated tax bill drops on their mat.

    In April 2011 the HB regs were amended so I could get LHA paid direct. I was on it day 1 as for me it was massive

    I had to tell my council about it though.  Even though it was their job  to implement and deliver it but they were not  aware of it

    They amended their forms as a result of my intervention

    But now over 5 years later I still meet LHA landlords clueless about that important amendment

    So however much we beat the drum some landlords will simply not realise the impact of all this new stuff until 2021 if at all

    As you say they  have day jobs and other lives far far away  from BTL

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    Jonathan Clarke. http://www.buytoletmk.com

    I bet Doctors cannot believe  how many many astute clever switched on intelligent people do not know how to perform CPR

    That is comparatively  far more important  as it could save loved ones lives and  still people don`t take time out to get up to speed on it

    I fear that  PRA awareness and sec 24 are  destined to remain relatively unknown and in the shadows for years to come.

    Your task to highlight it to people has only just begun.  Look on the bright side though - You have a job for life!

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    Jonathan Clarke. http://www.buytoletmk.com

    A quote from Aristotle Onnaiss

    The secret of a good deal in business  is when you know something others don't ???


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    I am writing to echo the comments above insofar as I have had a hectic week visiting our existing Clients simply to provide an update and insight in to the forthcoming, and already in situ, changes that impact on the everyday BTL'er.

    One of my long standing Clients is a hugely successful businessman and over the past 10 years years we have also advised him on the various funding strategies for his BTL and commercial property portfolio (8 properties) too.  He told me this week that he has seen "something in the headlines, but not really read it in detail"  The "something"?  The tax changes, the stamp duty changes, the PRA intervention, the limits on affordability, the ........  well, basically, anything and everything.   And, as has been alluded to above, this is not uncommon.  This post is not a criticism, it is an observation from someone who is immersed in BTL from both a Broker and also a landlords perspective.

    Already a few lenders have now implemented the changes to how much someone can borrow on a BTL basis, now based on the borrowers specific tax brackets and revised rental income calculator stress tests.  Some positive tweaks are that end ages have been extended, quirky property types are being allowed where not before and other various criteria which are property, borrower and credit specific, as well.

    But - and this is the question which every existing and new BTL borrower should ask themselves - do you know enough about the new regime, in order to make a properly deliberated decision as to how to proceed with your new financial plans and requirements?

    Judging by the massive feedback from our Client meetings and discussions, not many people know sufficient data at this time.

    Property Tribes Financial Services started 2016 by offering a portfolio review and many people took advantage of this.

    2017 surely has to be an even more serious understanding of 'where you are and where you want to be, and crucially, how to get there in the most efficient and profitable way'.

    On that basis, anyone who would like to be updated and find out the most appropriate options for their current and future planning, should seek specialist advice assistance.

    For tax advice, PT recommend https://www.Rita4Rent.com

    For legal advice https://anthonygold.co.uk/people/david-smith

    For mortgages (BTL, bridging, commercial, development, international/expat, secured loans) and also all landlord life cover too, 2017planning@PTFS.co.uk

    As my successful businessman Client (as above) said to me this week "I have had my head in the sand for too long.  I need your advice and my accountants advice and I value your support"   This says it all, too many people have not confronted head on what they need to do, simply because many people don't know what they need to know.

    Email us at 2017planning@PTFS.co.uk with your current situation and possible requirements and our Team of Advisers will be pleased to assist.

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    Specialist mortgage lender OneSavings Bank is the latest to announce that it is introducing stricter affordability assessments for all new buy to let mortgage applications.

    From December 28 OSB, through its trading brands of Kent Reliance and its subsidiaries InterBay Commercial and Prestige Finance, is falling in line with many other lenders and with the guidelines advised by the Bank of England’s Prudential Regulation Authority in its bid to control excessive buy to let lending.

    OSB says that from next week the minimum stress rate applicable for rental cover purposes will be 5.5 per cent or the initial pay rate plus 1.55 per cent, whichever is higher.

    OSB has also extended its definition of ‘standard property’ to include HMO/multi/student lets up to five rooms, or blocks of flats with up to four units, as well as single dwellings.

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    84% of brokers were unable to source a buy-to-let mortgage for some of their clients in Q4 of last year, with over a quarter (27%) attributing affordability as the main barrier, according to the latest MTF data.

    20% of the brokers surveyed said they were unable to get buy-to-let mortgages for clients with adverse credit and equally, while 20% blamed consumer buy-to-let regulations.

    69% of brokers said they opted for bridging finance after being unable to raise a buy-to-let mortgage for their clients in instances where time is of the essence. 

    Full/source story

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    I wonder how that will look for Q1 17 with the PRA first stage implementation from 1 Jan?

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