What do the various buy-to-let tax and regulatory changes of late mean for your business?
You simply have to adapt. We have seen a rise in the number of landlords choosing to become a limited company and we have always had a strong proposition in this area. We recently upgraded our product range to remove the £500 processing and administration fee for BTL applications from limited companies.
We also believe these changes will lead to a continued rise in business for the more specialist lenders, like Foundation, because the BTL market is becoming more complex. So these changes have presented opportunities for growth.
How has your business managed to navigate these changes?
Having a clear strategy; as we are not a large monolith of an organisation, we have had the advantage of being nimble enough to be able to adapt more easily and faster than others.
Do you feel that landlords are adequately educated on the new rules?
No. Having undertaken focus groups with experienced landlords earlier this year, it was clear many were not up to speed. The main challenge for these landlords was time; they were struggling to juggle careers as well as being a landlord.
Another contributor was the perception that the BTL market was on its way out, which has resulted in lower market confidence. While this is somewhat misguided and extreme, perception is reality for these landlords. This has highlighted the fact that more needs to be done to better educate landlords about the changes ahead.
What approach have you taken to portfolio landlord lending in light of the new PRA requirements?
We are well placed within this market because about half of our applications are from portfolio landlords. Consequently, there is very little change to our approach, which has always been about simplicity and pragmatism, and underwriting criteria. We will be applying a maximum aggregate portfolio of 75 per cent LTV, and this is calculated across the whole portfolio including unencumbered properties.
With regard to rental cover, we will apply a minimum aggregate rental cover ratio to the portfolio of 125 per cent, stressed at 5.5 per cent.
Intermediaries will continue to access Foundation’s existing products via its easy-to-use online system, where they can now upload details of the portfolio from a spreadsheet. As before, borrowers may have unlimited background portfolios and finance up to £2m with Foundation.
Are there opportunities presented by the new position the BTL market finds itself in?
Absolutely. The BTL market may be a bit smaller than it was and, yes, the market is more about remortgaging than purchase. However, demand has not disappeared and there are opportunities for intermediaries. The sector is in much better shape than it was several years ago.
The market is becoming increasingly complex – something which is good news for intermediaries. This is because if a case was very straightforward, there is a greater risk of the business by-passing them to those lenders that are not 100 per cent intermediary only, and who are investing in technology to increase their direct arms. Landlords now require help from their advisers more than ever before.
What do you see as the future for the BTL sector?
I think the market will have an influx of landlords serious about their portfolios and more engaged about working with intermediaries. It has been reported that there will be a demise of the dinner party landlord, which will alleviate time-wasting enquiries for intermediaries. So whilst the number of enquiries may reduce, the level of business should not.
The BTL sector has seen many changes and survived the downturn; for it to continue in the future, we all must learn to adapt to it.
Jeff Knight is director of marketing at Foundation Home Loans