Buy-to-let brokers are being warned to brace for delays and a “logjam” in lender service when new underwriting rules for portfolio landlords are implemented from 30 September.
The Prudential Regulation Authority’s new rules mean that all lenders must undertake tougher affordability checks on landlords with four or more mortgaged properties.
Lenders have flexibility in interpreting the new rules but must request more paperwork from brokers, including in-depth details around landlords’ business plans, cashflow forecasts and more.
With 30 September fast approaching, few large lenders – with the majority of market share – have provided details about their portfolio lending approach, giving brokers little time to react.
Mortgages for Business managing director David Whittaker says: “Do I think there is going to be a logjam in October and November? Absolutely.
“Collectively, lenders haven’t got their message out to the market about what their message will be on 1 October. This is not helpful. We have all collectively fiddled while Rome burns in the background.”
One Savings Bank sales and marketing director John Eastgate says: “The changes coming up will cause delays. The opportunities for brokers to have their heads spinning will be colossal.”
Another source of service delay will arise as lenders and brokers adapt to the new paperwork required when the rules come in.
Whittaker says: “Brokers won’t be used to the documents they’ll be asked to provide, so may not get it right first time. Or underwriters will encounter documents they haven’t been trained for.
“At every level there will be unproductive conversations as people challenge what is asked for. There will be thousands and thousands and thousands of these conversations, and anyone who doesn’t think that is deluded.”
Another potential cause of buy-to-let delay is if some large lenders either choose not to underwrite portfolio landlords or limit their lending to this group.
Fleet Mortgages chief executive Bob Young says: “We don’t know which of the large lenders will continue into portfolio lending and, if they do, will they come in on a restricted basis?”
Young expects all large lenders to undertake portfolio lending but has concerns about the lack of certainty.
He adds: “I suspect there won’t be enough supply for the current demand, let alone increasing demand. So that will cause issues around availability of product.”
The smaller specialist buy-to-let lenders with a portfolio lending capability stand to benefit from any reduced appetite for these customers on the part of larger players.
But these smaller lenders may find themselves unable to pick up all the slack, which would also create more broker service delays.
Whittaker says: “If you do the maths on what all those lenders added up can do, the sum of all the parts is less than one of the monoline buy-to-let lenders. If just one of those lenders decided not to transact in this space, imagine how the gunfire would move in the market.”
The Buy to Let Business managing director Ying Tan says: “Many lenders have yet to confirm if they will lend in the portfolio space but it is clear that specialist lenders will see an influx of business and may not have the resource to process applications in a timely manner, although they have the expertise.
“Even if they have the resource, the underwriting will be more thorough, meaning further delays or requests for extra information.”
Tan and Whittaker say brokers can prepare by being realistic with landlords about the delays, and being ready to communicate lenders’ stances on portfolio lending.
Tan says: “It is imperative that we manage our clients’ expectations and do not commit to promises we are unable to deliver on just to win business.”
Whittaker adds: “Lenders need to get information out there so that brokers can familiarise themselves.”