Come 30 September 2017, the Prudential Regulation Authority expects buy to let lenders to adopt a “specialist” underwriting process when assessing a portfolio landlord’s borrowing suitability. Exactly what those processes will be, brokers and borrowers don't yet know, and time is running out for us to prepare...
Specifically, the PRA is requiring lenders to be more diligent when making a lending decision on portfolio landlords because of the complexity of the borrower’s circumstances, namely:
- The amount of aggregated debt
- The cash flows and costs associated with multiple tenancies
- The potential risks of property and/or geographical concentrations
To recap, the PRA defines a portfolio landlord as a person with four or more distinct, mortgaged buy to let properties, either together or separately, in aggregate.
Last December, I mentioned that most buy to let lenders had said very little publicly about how they intended to implement this expectation. Worryingly, we still have not heard from them despite the fact that the PRA requires them to have a written underwriting policy which differentiates between buy to let lending and lending to portfolio landlords from 30 September 2017.
I don’t know about you, but I’m getting fidgety. Not only must lending criteria be tightened to comply with the changes but also staff will need to be trained, systems upgraded, criteria published, brokers, borrowers and the like informed. I’m not saying that lenders aren’t working on these things but with only five months to go the silence is deafening.
You may think that the specialist buy to let lenders already have the processes in place but I doubt that they have been differentiating specifically between portfolio and non-portfolio landlords when assessing affordability. And clearly, many more questions will have to be asked of all borrowers, even those who are seeking a simple, like-for-like remortgage.
Clearly, the mainstream buy to let lenders have a mountain to climb if they are to be ready for the new rules around portfolio landlords. Even if some decide simply to lend only to landlords with less than the four-mortgage threshold, they will still have to determine how to handle their customers who are already in the portfolio category. And they will have to make a decision on whether to accept limited companies as borrowing vehicles because to enter this market will take much preparation. Not to enter this market, could result in lenders having to adjust their lending targets downwards. This of course, will impact the specialist lenders who may experience a considerable uptick in business – a good problem to have possibly, but still one that comes with its own volume and serviceability challenges.
As we all know, the new regulations, coupled with the recent fiscal changes, were designed to impede the disproportionate growth of the buy to let market. It’s most definitely working, and since the general election, we have experienced a further, if very slight lull in enquiries from residential landlords. If this lessening of pace is happening across the market, it could be a good opportunity for lenders to make public their intentions for 30 September.
Borrowers, brokers, surveyors, solicitors et al are all hanging on what the lenders will do next. By default, we must follow the lenders’ lead and it’s hard to make any level of preparedness when we don’t know ourselves what to prepare for…
Needless to say, we'll keep you informed.
In the meantime, if you have any cases that require placing with the specialist lenders (Aldermore Bank, Axis Bank, InterBay Commercial, Kent Reliance, Keystone Property Finance and Shawbrook to name but a few) do get in touch with our deal placement team on 0345 148 9238. We've got direct access if you haven't and we can also help if you have little experience of placing commercial, development and the more complex residential investment deals. Your client will always remain your client and we pay excellent commission too!