Evidence suggests the industry is adapting to official guidance
Since this is my first contribution to Buy-to-Let Watch, you could probably do with knowing a bit about me. I have been a broker for 17 years and am a landlord. I have oodles of experience. To kick off, here are my views on developments since the Prudential Regulation Authority’s guidance on portfolio landlords.
Pre-PRA guidance, lenders would not pay a huge amount of attention to the landlord’s broader portfolio. They worked on the basis property should pay for itself with a margin that would provide a cushion for the landlord. But it was argued the more mortgaged properties a landlord owned, the more debt they carried. And while many have financial buffers aplenty, some only just skim enough profit to cover a small base rate rise.
My thoughts on this are quite different. Lenders tell us their buy-to-let books performed much better than residential books in the credit crisis. And having a larger portfolio usually means there will be sufficient profit to pay for a property in void periods.
The PRA suggested lenders show curiosity and be comfortable in the overall financial exposure a borrower had to the property market.
Lenders had to report back on what they were doing to meet the requirements; if not enough, they would face a fine. In scenarios like this, the response is 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.
We are now seeing a tangible relaxation from lenders. Some have eased affordability tests where the borrower is on a five-year fixed rate. Others who were cautious of lending to those with more than a handful of properties have widened the net. The very good news is that, out of the 1,865 products available on 13 November this year, 1,450 were available to portfolio landlords.
It is fair to say rates tend to be higher for more than 10 properties, but once the borrower hits this figure, brokers start talking to the specialists. And that, colleagues, is where the opportunity lies next year.
Jeni Browne is sales director at Mortgages for Business