The PRA’s changes to tighten up lending criteria and ensure consistency have sent tremors across the lending landscape. Borrowers with four or more mortgaged buy-to-let properties are now classified as ‘portfolio landlords’ and subject to more stringent underwriting standards.
In its Supervisory Statement released at the time it announced the changes, the PRA said: ‘The PRA expects firms to recognise that existing experience and skills acquired in buy-to-let lending do not automatically translate into equivalent skills when assessing portfolio landlords. Lending to portfolio landlords is inherently more complex given the quantum of debt in aggregate, the cash flows and costs arising from multiple tenancies, and potential risks of property and/or geographical concentrations.’
As well as having to provide more in-depth information for new applications, brokers and landlords now also have to submit details for all the other properties in their portfolio. It’s caused an increase in the volume of work for both parties and, as a result, all lenders have had to radically rethink the way in which they’ll lend to portfolio landlords in the future.
We’ve seen lenders adopt a wide range of different approaches. Some lenders appear to have given very little thought to the impact on brokers’ sales processes and fee earning ability – they’ve pushed the burden onto the brokers by asking them to key in the portfolio details into their systems, meaning more work for the brokers for the same amount of money. Other lenders have announced they won’t be lending to portfolio landlords at all.
Imagine you’re a broker submitting a £100,000 buy-to-let application. Before the new regulations were introduced, you’d have earned a proc fee of around £400 for doing this. Now imagine your customer is applying for a new buy-to-let mortgage and already has 10 other properties in their portfolio. Following the introduction of the new regulations, not only do you now have to key in the details for the new application, you also have to supply data for the other properties too, all for the same £400 proc fee. You can see where the problem is and why some brokers might be reluctant to help portfolio landlords in the future.
It all means the market is now much more complex, with the expectation that specialist lenders will cope better with the changes than the larger ‘vanilla’ high street lenders. Certainly, as portfolio lending becomes more specialised, brokers and landlords will be less likely to go to lenders who aren’t providing them with the support they need.
Here at Precise Mortgages we thought long and hard about how we could minimise the disruption to brokers and landlords, while meeting the new requirements at the same time. We’ve set up a dedicated portfolio team who do the ‘heavy lifting’ for brokers by keying in the additional information – business plans, assets and liabilities statements, and details of existing residential property portfolios – required by the new regulations. Brokers can submit the information on our forms, landlords’ documents or any other format.
Although the long-term effects of lending to portfolio landlords are likely to be significant, there will be opportunities for specialist lenders and brokers who are prepared to adapt and evolve to the changing market. By making things as simple as possible and minimising the impact of the change, these lenders can help brokers and their customers concentrate on doing what they do best – growing their buy-to-let businesses.
Alan Cleary is managing director of Precise Mortgages