The painful evolution of the BTL industry


I want to talk a little bit about the new rules affecting lending from the 1st Oct 2017. This ushers in a era of more new regulations in the UK buy-to-let industry. There’s been a continued pressure in this market for the last 2 years and this is another painful stage for anyone who’s been around for a while and seen the changes in this industry over the last few years.
BTL changes
The current changes are pretty aggressive and will really impact those who are not used to paperwork and keeping good records of everything that they own and spend money on. So if you’ve being a landlord for a few years and intend to keep buying properties and you currently own more than 4 you are deemed as a ‘portfolio landlord’. If you are now borrowing money for your next property you will not just be assessed for that property but the whole of your portfolio. That means your rental income, your other personal income if you have any other sources and your expenses, your day to day running expenses and also anything else that you spend money on with regards to property management and property maintenance will be assessed to reach a decision by the lender as per teh new regulatiosn by the PRA. So all of that along with the taxation changes that have happened recently are going to continue to affect all landlords who need borrowings to build their portfolio. The lenders will be taking into account all of this to assess whether you are a high risk borrower – somebody who is likely to default or not. So if you’re not used to keeping your spreadsheets and accounts yet, I think you will need to start changing your procedures and systems to accommodate this and keeping up to date record of all your the income because money from a standard lending will be sunbejct to alot more scrutiny, unless you’re doing peer-to-peer or private lending. You will be required to present a lot of data and paperwork, lot of form filling which will also add more to the broker’s task as teh work required for every aplication is going to increase many folds. This may also increasy your financing costs with rising broker fees.

The only good thing that might come out of this change will be that any rogue landlords who have been borrowing money without consideration or declaring all their income and/or even the rest of their portfolio properties will definitely be routed out of the market because the lenders will definitely find out. Additionally, as a landlord if you’ve not been declaring their income to the HMRC they will definitely get caught out as well as HMRC are part of this loop too. Although a small minority but such landlords will find it difficult to borrow money in the future and hence industry will be cleared out of all the rogue mortgage operators and landlords. Let’s hope that the fraudulent activity in this market will reduce. So there are good and bad elements to this change as some of it might help clean up the industry and we can move forward as professional body of individuals working hard in this industry. In the long run, we will be in an Industry which is well regulated and operated by professional landlords and professional property owners and investors. Only time will tell!