The PRA’s expectation that mainstream lenders will adopt a specialist underwriting approach raises many questions
Lenders have said very little publicly about how they intend to implement the PRA’s new underwriting principles and expectations regarding portfolio landlords.
The PRA says portfolio landlords ‘have four or more mortgaged buy-to-let properties across all lenders in aggregate’. It expects lenders to adopt a ‘specialist’ underwriting approach when assessing such a landlord’s borrowing suitability.
For mainstream buy-to-let lenders in particular, this expectation raises many questions. I worry that, although the 30 September 2017 deadline seems a long way off, it is really not much time. The questions that spring to mind include:
- Will some lenders decide not to accept new customers that are already portfolio landlords?
- How will lenders deal with customers with properties held in limited companies?
- How will they know if a customer has a share in a limited company that owns mortgaged buy-to-let properties?
- How will lenders treat directors who are not shareholders?
- What of existing customers who are already portfolio landlords?
- How do lenders know how many properties existing customers own?
- Will lenders be able or want to offer product transfers (on a like-for-like basis) without assessing the customer’s entire portfolio?
- Will lenders have to reassess a customer’s entire portfolio if they are refinancing to raise capital?
- What calculation will lenders use to stress a portfolio?
- What documentation will customers need to support their application?
- Which staff need to be trained to understand what is acceptable income, limited companies, business plans, tax returns, portfolios, rental accounts and so on?
- How will the changes impact lenders’ technology? Will there be time to devise and implement the changes?
- How much will it cost lenders to prepare for the changes? How much will it cost in future?
- How will it affect product pricing?
- How will business volumes be affected?
- Where will lenders find the additional skills to cope with the changes?
These are all off the top of my head. No doubt plenty more questions will need answering.
I sincerely hope that lenders, both mainstream and specialist, have already started work on this mammoth task.
The new principles regarding portfolio landlords will affect all lenders one way or another. Doing nothing is not an option.
David Whittaker is chief executive at Mortgages for Business