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‘Tough B2L underwriting rules needed to keep lenders in check’


Buy-to-let experts agree with the Prudential Regulation Authority that a minimum set of underwriting standards are needed to keep lenders in check.

The proposals are laid out in a consultation paper on buy-to-let, published this morning. The paper includes suggestions for a minimum level of stress testing and new definitions and rules for portfolio landlords, among other mooted rules.

In the minutes of its latest meeting, the Financial Policy Committee says the PRA’s proposals are designed to stamp out slack lending practices.

He says: “The PRA’s review of lenders’ plans revealed that some lenders are applying standards that are somewhat weaker than those prevailing in the market as a whole.

“The PRA’s action is a prudent supervisory measure intended to bring all lenders up to prevailing market standards. It will guard against any slipping of underwriting standards during a period in which rapid growth plans could be challenged by the impact of forthcoming tax changes.”

One anonymous mortgage broker boss says that the PRA will take a dim view of how a minority of buy-to-let lenders currently behave.

He says: “The regulator is going to take those people and walk them round the block several times and say we’re not going to accept that.”

Association of Mortgage Intermediaries chairman Pat Bunton says: “It appears to be an attempt to ensure that buy-to-let lending doesn’t soar out of control. It is entirely consistent with all the messaging that has been given previously.

“Can you argue against taking a stress test on rental calculations? No, because no-one in their right mind would argue against it. Is it potentially going to stop some lenders from doing things that they would otherwise have done? Perhaps it will.

“But for me, this is really just a clear signal that the powers that be are anxious about the housing market, full stop, and don’t want it to run out of control.”

Anderson Harris director Adrian Anderson says the changes are sorely needed.

He says: “It is crucial that lenders assess the affordability of anyone applying for a buy-to-let mortgage, just as they do with residential deals.

“Currently, most of the focus is on the property and anticipated rental income but lenders are starting to view the applicant more closely, considering their personal income and whether they have any cash or other investments that could be liquidated.

“It is encouraging that existing landlords and their investments will not be unfairly hit by any proposed changes.”

A Council of Mortgage Lenders spokeswoman says the PRA proposals will future-proof the market.

She says: “It does look, broadly, as if they are interested in a pre-emptive set of measures rather than something that is specifically designed to curtail or impact current lending practices. So this looks like future proofing the market rather than trying to make a big splash or influence on it right now. Most lenders, most of the time, would fall within the stress tests and income cover ratio criteria they are talking about.

“On that basis, so long as we can prevent too many unintended consequences and it is a proportionate response then I think many lenders would recognise that and see that as something that is liveable with.”

Mortgages for Business managing director David Whittaker says many lenders’ lending policies already match the criteria laid out in the proposals.

He says: “I think our view is that many lenders are already on the pathway towards the outcomes that this consultation paper envisages.

“A minimum borrowing interest rate of 5.5 per cent is where most people now are, and those that aren’t no doubt will get the telephone call telling them to get there pretty damn quick.”

The consultation says the government is concerned about the short-term nature of many buy-to-let mortgages.

But Whittaker says that many landlords are not interested in five-year fixes, preferring shorter terms.

He says: “For many of them, I’ve been talking about future base rate increases like a monotonous watch for far too long.

“Often, their view is there will be no base rate rises this side of next doomsday.”

While many in the mortgage industry welcomed the proposals, former RICS chairman and north London estate agent Jeremy Leaf slammed the proposals.

He says: “The changes the Chancellor has made to mortgage interest tax relief and higher stamp duty for landlords will have enough of an impact on buy-to-let without the need for further interference from the Bank of England. Landlords will already be put off investing further unless the numbers add up and this is a case of kicking them when they are down.

“The Bank of England should have waited to see what impact the changes that have already been made have on the market before making further tweaks.”


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