Stricter affordability checks for landlords

Journalist: Rachel Mortimer, Daily Telegraph

ended 21. April 2022

Keen to hear from mortgage brokers who have seen a marked increase in the detail being asked of landlord borrowers by lenders.

One landlord has been asked for their full tax return for the first time in 20 years in the BTL sector and was even asked how they funded their initial investment from two decades ago. It was for a remortgage on a let property at 50% LTV. 

Are lenders more cautious now? And why?

Thank you! 

4 responses from the Newspage community

Star Quote
"The level of detail requested from buy-to-let borrowers differs from lender to lender, and also depends on how zealous the specific underwriter that assesses the application is. It's commonplace for tax returns to be requested as part of routine due diligence, and this is something that a mortgage broker should be requesting from each applicant at outset. That said, a request for evidence of the source of funds from 20 years ago is unnecessary and unlikely to add any value to a risk-based lending assessment."
Star Quote
"It has been suggested lately that a mortgage adviser could be complicit in tax evasion by failing to check that a landlord is declaring their rental income by asking for a copy of their tax return. Some lenders, such as Paragon, have long asked for tax returns as well as tax summaries and tax year overviews. Some lenders, such as BM Solutions, may ask for copies of tax documents post-offer (and even completion) as part of their quality assurance checks. The days of "non status" buy-to-let applications have passed and these documents should be routinely available and collected as part of standard KYC processes."
"Currently, the yield curve is inverted so lenders are being much more cautious in their underwriting methods to ensure that the loans they approve have the necessary due diligence on them. If the economy does then hit a stumbling block and property owners want to claim, as they did in the global financial crisis of 2008, that banks had loaned money irresponsibly, that will no longer cut it."
"You may find that the reason the income was being scrutinised is to check that no deposit moneys were coming from somewhere naughty like a bounce back loan. We have found that on a lot of self-employed cases lenders have asked for a greater amount of evidence than normal and it has actually been to check out what assistance was taken during the various COVID lockdowns. That being said, some lenders are just a pain in the backside because they have recruited vast numbers of new underwriters who don't have much mandate to use their own common sense. That means loads of paperwork and longer turnaround times."