In accordance with the Prudential Regulation Authority (PRA) supervisory statement on Buy to Let underwriting standards in September 2016, Accord will introduce changes to its underwriting approach for landlords who meet the definition of a ‘Portfolio landlord’.
Definition of a Portfolio landlord
- Portfolio Landlords will be defined as those having 4 or more mortgaged BTL properties.
- The definition is applicable at application level not applicant level. Therefore for 2 landlords applying together, the total number of their individual and joint mortgaged properties will be taken into account.
- We’ll include other applications currently ‘In-flight’ with Accord and other lenders to determine the total number of mortgaged BTL properties.
|Scenario||Is the case a Portfolio Landlord Application?|
|1||App 1 & 2 have 3 BTL properties in joint names and App 1 has another in sole name||Yes|
|2||App 1 & 2 have 2 BTL properties in joint names||No|
|3||App 1 & 2 have 4 BTL mortgages held in joint names and are remortgaging one of these to Accord||Yes|
|4||App 1 & 2 have 2 BTL mortgages in joint names. They’re applying to us to purchase another property and they have an ‘in-flight’ application with another lender||Yes|
|5||App 1 & 2 have 5 BTL properties in joint names, 2 are unencumbered. Applicants are looking to raise funds with Accord on one of the unencumbered properties.||Yes|
|6||App 1 & 2 have 3 BTL properties in joint names which are unencumbered. They’re applying to us to purchase another property.||No|
We’ll assess the financial strength and competency of a portfolio landlord by taking into consideration their experience in the buy-to-let market, their full property portfolio and any outstanding mortgages along with their assets and liabilities.
Our existing rental calculations will apply for new borrowing. All background properties must collectively meet a minimum rental calculation of 135% interest coverage ratio (ICR) at a stressed rate of 5%.
There are no changes to loan to value (LTV) limits, maximum loan size or minimum income.
We’ve tried to make our portfolio lending criteria as simple and straight forward as possible. In addition to our standard criteria, portfolio landlords will be required to supply details of any applications currently being processed with other lenders and complete an assets statement. We’ll also ask these landlords if they anticipate any financial changes or changes in circumstances which could impact the affordability of their portfolio.
What changes will I notice when I submit a case to you?
The first thing you’ll notice is the questions we’re asking about existing background BTLs have changed. We’ll also ask you about ‘In-flight’ applications. The system will use this information to determine if the case is a ‘Portfolio Landlord’ application or not.
If the application is classified as a ‘Portfolio Landlord’ case, when it reaches ‘Initial Assessment stage’ (the point at which an underwriter is ready to start to review the application), you’ll see that a new document will be available to complete. This document is called ‘Personal Statement of Assets’. The Underwriter will require you to complete and upload these details so that they can assess the landlords financial strength.
As explained earlier, you’ll notice that the interest coverage ratio (ICR) applied to the combined background portfolio properties will be calculated at 135% @ 5% and will be based on ALL background Buy to Let properties in the portfolio. This will include unencumbered properties. All new lending will continue to be calculated with the existing ICR.
Are you changing the maximum number of properties allowed in the portfolio?
No. This will remain unchanged at 15 of which no more than 10 can be mortgaged
Are inflight applications included in the total allowable number of portfolio properties?
No, we only count inflight applications when assessing whether the applicant is a Portfolio Landlord or not. Inflight applications will not count towards the total number of properties you are allowed nor will they be included in our rental calculation.
What rental stress test will be applied on the portfolio?
The interest coverage ratio (ICR) for portfolios will be 135% of 5%
What is the overall maximum LTV allowed on the portfolio?
We don’t assess the LTV at portfolio level.
Do unencumbered properties count when defining whether an applicant is classed as a portfolio landlord?
No, unencumbered properties are not included. However, the rent from unencumbered properties is included in the background rental calculation.
Is there a maximum LTV applied on individual units in the portfolio?
We won't assess the LTV on any portfolio properties, only the new loan being applied for. We’ll look at LTVs in respect of the overall quality of an application.