For what now seems like an age the financial services sector, the various media outlets operating in our industry and so many lender communications themselves have been awash with news, updates, product criteria changes and new submission requirements for portfolio buy-to-let lending as a result of the PRA changes which I’m sure you all know have recently come into force.
The actual news is that for those of us who have been historically operating in the commercial finance sector, there is not really anything substantially new here in terms of the type of information to be collated and interpreted in order to put together a finance proposal.
Since TBMC was first founded many years ago, as long as we have been arranging commercial and business finance – and certainly as long as I’ve been here – all the main banks and the vast majority of other commercial lenders have built into their underwriting process a requirement to fully understand exactly the kind of ‘wider picture’ assessment now forming such an integral part of the same process for portfolio landlords, comprising comprehensive details of every aspect of the applicant’s finances.
The types of information being assessed have generally included all wider property portfolio information for assets and liabilities vested either solely or jointly, and usually also portfolios held in other companies in which the applicant has a financial stake.
This level of due diligence has long applied, and continues to apply in most cases, for all conceivable types of business transaction considered by commercial lenders, whether that is company buy to let, owner-occupied commercial mortgages, commercial and semi-commercial investment property, and often also extends to non-property related funding such as asset finance, invoice discounting and cashflow finance.
Also forming part of that global view for lenders underwriting huge numbers of our cases over the years has been cashflow forecasts, business plans and trading accounts for all companies under an applicant’s control irrespective of the status of the actual borrowing entity at hand.
It’s clear to us at TBMC however that the recent changes are, in our view and in reality, little more than the regulatory requirements for professional landlord finance essentially catching up with the type of ‘drains up’ underwriting practices that have always been in place for the vast majority of, what might have previously been called, ‘true’ business funding applications.
Whether the properties and associated funding is structured in individual names or corporate entities, it makes perfect sense that any borrower who has started to build a portfolio on which they expect to make money over time, ultimately becomes both technically and legally a business; certainly in the eyes of HMRC where anyone with even a single buy to let property falls under their remit. After all what is a business but an individual or individuals undertaking deliberate activities designed to make a profit?
It was perhaps therefore inevitable that at some stage a line would be drawn between amateur and professional landlords, with the latter being considered as bona fide businesses with a requirement to be underwritten as such.
The main message I hope most of you will take from this article is that the PRA changes aren’t really something for any borrower or broker to be unduly nervous about. A bold statement perhaps, but as detailed above, it derives from our many years’ experience of placing all shapes, sizes and complexities of commercial and business finance in handling exactly the more complex type of underwriting requirements now being instigated by BTL funders.
Jane Simpson is managing director of TBMC