We have now heard from four lenders on how they intend to approach the specialist underwriting requirements for portfolio landlords come October when the second part of the PRA’s new regime kicks in.
At the back end of June, The Mortgage Works was first to break the deafening silence which has haunted the industry since the guideline timescale was published. This was quickly followed by Paragon Mortgages, Keystone Property Finance (our own lending brand), and Aldermore.
It will come as no surprise that all four will be asking for more information to help them make a lending decision when dealing with portfolio landlords. And although we are yet to hear from the other lenders, we know that, if they choose to accept portfolio landlords, they too will be upping their documentation requirements.
The additional information will help lenders validate the applications. Items which may have been rubber stamped before will come under much greater scrutiny. Crucially, interest in landlords’ entire portfolios, about which previously, many lenders showed much less curiosity, will intensify. And you don’t need to be a rocket scientist to work out that this all equates to a much heavier workload for lenders, borrowers and brokers.
Lenders will have to swallow up the costs involved in rolling out the new guidelines – processes, systems, training and staffing levels.
As the conduit between lender and borrower, brokers will devote considerably more time helping landlords understand the changes, extracting from clients the details of entire portfolios and signposting clients to take the right advice. The time brokers spend to-ing and fro-ing, collecting and collating information will increase significantly. For brokers with clients who have considerable portfolios, this could be a monumental task.
TMW has said it will be rolling out an online solution which will allow brokers to “populate the portfolio details” which will then be automatically validated and manually assessed. What TMW doesn’t yet say, is HOW brokers will populate the portfolio details. If they can simply upload a spreadsheet that’s all well and good. But if the details of each property have to be entered by hand, that could take hours and hours and hours… and brokers will not be paid a penny more in terms of proc fee. In fact, TMW’s website confirms that proc fees will be the same for portfolio and non-portfolio landlord cases.
I’m not trying to single out TMW, just making a point. How will the other lenders accept the details of landlords’ portfolios? Have they all been secretly developing tools to accommodate this enormous additional information requirement? And do they really expect brokers to do this without recompense?
Ultimately, it will be the borrower and the tenant that has to pay but it’s a competitive market out there and whilst there might be room to increase rates (and percentage based arrangement fees have definitely crept up), brokers too, need a pay rise.
As a broker myself and the owner of Keystone, I can see the issue from both sides. Yes, it’s entirely feasible that brokers can increase the fee they charge to clients, although many don’t charge broker fees. But, and it’s a pretty big but, in an intermediary-led sector, lenders will rely on the broker to co-ordinate the increased red tape. And so lenders have an obligation to pay.
At Keystone, we acknowledge this absolutely and will be increasing our proc fee by 10 basis points from October. Additionally, we will continue to review proc fees in relation to the work undertaken by brokers. Further, we will launch new tools to help streamline the process for brokers – more on this soon but we intend to avoid brokers becoming extreme data inputters.
As yet*, no other lender has said how they intend to treat portfolio landlords or if they will be reviewing proc fees and the sector awaits such announcements with baited breath.
I sincerely hope that lenders which do decide to operate in the portfolio landlord space, will raise proc fees. Not to do so could have serious ramifications which will further alter the already changing buy to let landscape.
Many brokers may simply decide not to have portfolio landlords as clients – too much expertise required for too little return. These brokers could find themselves running short of clients as the amateur landlord market slows in light of the increased tax burden.
Brokers who see portfolio landlords as an opportunity will not only take on more work, they will have to suffer the ensuing logjam of applications that will undoubtedly arise come October. It’s like looking at a multiple car crash in slow motion when what we really need is a map and a clear road.
*17th July 2017
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