It is now just over a month since the PRA introduced new guidelines for lenders underwriting buy to let mortgage applications from for portfolio landlords. Paul Martins, expert buy to let broker looks at the major changes and offers his honest opinion on how the market is adapting.
Since the PRA’s introduction of new underwriting rules for portfolio landlords at the end of September, those with four or more mortgaged buy to let properties will have noticed that the mortgage application process has changed.
In short, the process for portfolio landlords is now a bit more painful than before. I’m afraid it’s more paperwork, more questions and stricter affordability checks. Whilst this may seem like an inconvenience, there is some rationale behind it.
The PRA wants lenders to ensure that they themselves and landlords are not over-exposed. This means checking that portfolios are at an acceptable risk level, geared at roughly no more than 75%. If your portfolio is geared above this, your options for finance may well be restricted.
A positive note, which should be highlighted, is that with lenders using an average if you are fortunate enough to have one or two unencumbered properties in your portfolio it usually dismisses affordability concerns.
Although the questions and level of paperwork required differ from lender to lender, there is one main document that all lenders assessing applications from portfolio landlords require – a portfolio spreadsheet.
Fortunately, most landlords have this in one form or another, so it hasn’t proved too much of a challenge so far… For those that don’t have a spreadsheet, we have created one to use as a template which, once completed, should contain all the information all lenders require.
One thing I would say is that landlords need to get into the habit of reviewing and updating their portfolio spreadsheet on a regular basis. The information must be up-to-date and correct to stop any delays occurring during the application process.
Here at Mortgages for Business, we have taken the time to speak with every buy to let lender and gather information on whether it will be lending to portfolio landlords and if so, what additional documentation will be required.
Although some lenders have adopted underwriting calculations which Rain Man would struggle to understand, overall, I am impressed with how lenders have adapted to the changes. Having said that, it is too early to gauge how they are faring on service levels. So far, I haven’t noticed any major delays. Many lenders have increased the size of their processing teams meaning the transition might be smooth in some instances, although some of my colleagues are predicting logjams elsewhere. If the speed of processing is of primary importance, do let us know and we can factor this into the equation when determining the right product and lender for your circumstances.
The majority of lenders are trying to remain positive and help to keep the process as easy as possible. For example, with Precise, it is mandatory for portfolio landlords to submit a business plan, but this has been reduced to four multiple choice questions regarding the landlord’s property investment objectives, operating model and portfolio strategy (types of properties and tenants).
Keystone Property Finance, Kent Reliance, Shawbrook Bank, Vida Homeloans, Landbay and Paragon are accepting portfolio spreadsheets in any reasonable format, so there should be no huge impact from a customer perspective.
On one point, I am still sceptical - the use of Automated Valuation Models. These systems are used to determine if the value stated on your property portfolio spreadsheet is accurate. The testing phases of these models has been positive, with 90 – 95% of portfolios stacking up on the values. My main concern now is whether these systems are technical enough to include the more specialised properties such as multi-units and HMOs – only time will tell.
Overall, I am pleased with how brokers, lenders and landlords have reacted to the changes. As a landlord, if your paperwork is up to date and your overall borrowing is around the 75% loan to value, then yes, you may have to complete a few extra questions, but you should by no means panic about getting finance.
Paul Martins has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the BTL Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.
You may also be interested in:
>> Portfolio landlords' checklist
>> Property Portfolio Spreadsheet (inc guide)