Jeni Browne, Sales Director offers a quick recap on her recent webinar - Buy to let borrowing update for portfolio landlords.
Pre-PRA guidance, and still, for non-portfolio landlords, when lenders underwrite applications they don’t pay a huge amount of attention to what is going on in the background in terms of the landlord’s portfolio. Lenders have worked on the basis that the property should pay for itself with a margin, and that margin will provide a sufficient cushion to protect the landlord if, for example, interest rates increased, they suffered a rental void or needed to carry out works to the property.
The reality is that the more mortgaged properties a landlord owns, the more debt they carry. And whilst many landlords have a well thought out and managed portfolio which has financial
buffers aplenty, some only just skim enough profit to be able to cover a small base rate increase but no more. Likewise, for those with a large and highly leveraged portfolio, if the property market took a dive, they would end up in a negative equity position which they would never be able to repay unless the market recovered.
I realise my opinion counts for nowt but my personal thoughts on this are quite different. In my experience, lenders tell us that their buy to let books, even during the recent credit crisis,
performed much better than their residential book. Similarly, having a larger portfolio usually means that there will be sufficient profit to pay for a property if it is having a void period. It is often those with just one buy to let who are the more exposed.
Ok, back to the PRA and how it works. Guidance notes are issued, for example, lenders should show curiosity and be comfortable in the overall financial exposure the borrower has to the property market. The PRA doesn’t actually tell the lenders how they should do this, and what ‘comfortable’ should look like, i.e. a borrower can have no more than five properties in one street. The lenders are left to interpret the guidance as they see fit. They then need to report back on what they are doing to meet the requirements and, if they aren’t doing enough, they face a fine.
What then happens is lenders respond with a knee jerk reaction – most become overly cautious, some get out of the market and a few do the absolute minimum they think they can get away with to stay on the right side of the line. Time goes by, everyone sees what everyone else is doing and things start to evolve and morph into a more final shape.
We’re now past the knee jerk and are seeing a tangible relaxation from some lenders. For example, some have relaxed their affordability tests where the borrower is on a five-year fixed rate.
There are also a few lenders who were always cautious of lending to those with more than a handful of properties, who have now widened their net to lending to those with 10 properties in the background. 10 seems to be the magic number, where you cross the Rubicon and move away from the high street and into the world of more specialist lenders. I can’t really tell you why; I guess these lenders disagree with the PRA and think that four doesn’t make you risky, but 10 does...
Anyway, the very good news is that out of the 1,837 products which were available on the 10th October this year, 1,408 were available to portfolio landlords. I think it’s fair to say that rates tend to be higher if you have more than 10 properties but this doesn’t mean there aren’t rates out there!
Obviously this a very quick recap on where things sit for portfolio landlords. In my recent webinar I answer some of the most frequently asked questions around this topic including how much longer does it take to process a portfolio landlord application and limited company or personal does it matter? I also look at how portfolio landlords can increase their chances of securing finance.
The Mandatory HMO Licensing scheme is being extended!
Are you and your HMOs affected? Find out here: