Do your landlord clients know about limited company buy to let borrowing and the new underwriting guidelines for lenders lending to portfolio landlords? David Whittaker has been out and about meeting landlords and has found that many are still unaware of the changes to the buy to let landscape...
A while back my marketing department suggested that whilst the buy to let sector was facing such upheaval, I should spend more time out and about, meeting landlords and brokers. Marketing said not only would it be good for our brand and lead generation, but more importantly, I should do my bit to ensure that the recent and forthcoming changes and their implications were first and foremost on everyone’s minds.
Obviously, the ulterior motive was simply to get me out the office but that works two ways…
Anyhow, I did as I was asked and have now given a presentation on the changing shape of buy to let lending at a multitude of shows and conferences the length and breadth of the country.
At each event, as well as explaining the new tax and PRA rules, I ask the audience about their understanding of the changes and how they have responded. At the most recent event, The National Landlord Investment Show held at London Olympia on Thursday 15th June, sentiment amongst landlords was a surprisingly sanguine mix of acceptance and uncertainty.
Most landlords said they were no longer worried about the higher rate of Stamp Duty. As with every business they had accepted that extra or unexpected costs just had to be factored in. In the long run, they felt that although hefty, the tax wouldn’t be so detrimental to landlords with larger portfolios but it was likely to put off novice landlords who want to make money quickly.
The majority of landlords we chatted to said that the new regulations and the tax changes hadn’t made them want to leave the market but they felt that lenders, brokers and landlord organisations could be doing more to educate landlords and help them to understand how to respond. To my mind, two subjects stood out: limited company borrowing and the forthcoming changes to underwriting standards for portfolio landlords.
Limited company buy to let borrowing
Many landlords were still unsure about whether they should be borrowing via a limited company going forward. Quite a few had not even heard of an SPV limited company and did not know that they are the preferred structure for the buy to let lenders that accept limited company borrowers. Some were actually shocked (and pleased) to learn that some lenders offer the same pricing to both individuals & corporates.
Underwriting standards for portfolio landlords
A greater number of landlords professed to having no idea about the new PRA guidelines for underwriting applications from portfolio landlords which come into play from October this year. They were surprised to learn that the definition of a portfolio landlord has been set at such a relatively low threshold (four or more mortgaged properties across all lenders in aggregate).
They were also quite alarmed that going forwards they would be subject to much tougher affordability checks and have to provide considerably more detailed supporting information (business plans, cash flow forecasts, bank statements, tax returns, SA302s, income and expenditure sheets, etc). In particular, they didn’t know that lenders will have to stress landlords’ background portfolios in accordance with the new rules to ensure that they weren’t over-committed – even for simple refinances.
Having digested this news, I was genuinely surprised by the number of landlords who came up to thank me for putting them in the picture! They departed, not only determined to get their paperwork ready, but also thinking about bringing forward future refinancing plans with the aim of getting finance in place before the changes are implemented.
To me, and hopefully other brokers, that’s an opportunity right there…
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30th June 2017