It’s now just a matter of weeks until the PRA’s new portfolio landlord changes kick in, which will see landlords that own four or more mortgaged properties face robust new underwriting standards that reflect the complexities of managing cash flows and costs from multiple tenancies.
The new rules are set to improve the long term capital sustainability of the buy-to-let sector, but whichever way you look at it, the higher reporting standards are going to create a lot more work for landlords and their brokers over the coming months.
It’s understandable then that so many brokers have been crying out for greater clarity from lenders about whether they will continue to serve the portfolio end of the buy-to-let market, how they will be approaching underwriting, and what their specific lending criteria will be.
Indeed there have been suggestions that larger more established lenders could decide to shy away from the greater administrative burden altogether and take a step back from the buy-to-let market, ultimately dampening the availability of loans available to portfolio landlords.
There may well be some truth in those claims. Mainstream lenders are largely focused on highly automated and straightforward loans to individual borrowers, so it’s only natural that some will feel the increasingly bespoke and ‘hands-on’ approach to underwriting doesn’t fit with their wider approach to lending.
Silence is deafening
These larger lenders may well be working on it, but, with 30 September fast approaching, their silence is deafening.
Even if they make the decision to lend only to those with three or fewer mortgaged properties, they must still determine what they will do with those customers who already lie in the portfolio category and whether they will be accepting limited company loan applications given the significant rise in these since the tax relief changes were announced two years ago.
For brokers, they will need to work quickly to familiarise themselves with new lender criteria, and also encourage much more financial documentation from landlords before they can recommend loans.
The PRA changes might seem like an unwelcome development, but brokers should also see the changes as an opportunity to stand out from the competition. Many are already ensuring they are ahead of the game by reading up on the finer points of the new regulations, educating clients, and strengthening bridges with lenders they trust will help them navigate the new landscape with the minimum of fuss.
The PRA itself is encouraging lenders to be prudent when underwriting portfolio cases, but it’s important that this doesn’t drive lenders or brokers to step away from these cases.
Ultimately an experienced professional landlord will, nine times out of ten, provide better quality housing for their tenants and we should be encouraging this professional approach, whilst keeping an eye on quality and maintenance.
Unfortunately for anyone hoping for a quiet August, the next few weeks are likely to be quite busy as many try to beat the September deadline, and workloads will inevitably feel quite heavy from then on as the industry finds its new normal.
In the meantime, for anyone unsure what the changes will mean for them, now’s the time to pick up the phone to your specialist lenders, get a good grip on their operating platform, and save a few headaches in the long run.
John Goodall is chief executive of Landbay