Bob Hunt is chief executive of Paradigm Mortgage Services
While August is often a quiet month for the mortgage market as prospective clients make for sunnier climes, I suspect advisers active in the buy-to-let market will be taking the time to understand what is coming over the horizon from lenders.
In less than two months time, the new PRA underwriting rules for portfolio landlords will come into force and lenders are beginning to publish details firstly on whether they intend to ‘play’ in this part of the sector, and secondly, how they will approach such clients. A handful of lenders have already provided a degree of detail on this but we’re a long way from getting full clarity across all providers – I suspect that we will be waiting right up until ‘deadline day’ in some cases.
So, what information do we have to date? Well, even though portfolio landlords are a relatively large, and important, client base for buy-to-let lenders it’s not entirely clear whether all will continue to offer mortgages to this grouping. Certainly, if you delve a little deeper into the detail we have from those lenders who have made a public announcement then we might believe that some are not overly keen to continue lending in this space.
This has long been a concern for many stakeholders in the market – that some lenders would look at the requirements from the PRA and decide that the work involved, particularly in terms of the documentation requirements and the individual underwriting approach needed, would not fit their operation. While they might not be explicit about their intention not to lend in this part of the market, I think it’s obvious that we’ll see some providers exiting in all but name.
Certainly, these PRA rules will not favour those lenders who operate systems which work best with little human intervention. For instance, if you are what might be termed a ‘vanilla buy-to-let’ lender, operating in the mainstream market and generally writing most of your business in the high-volume, individual space, then the requirements to deal compliantly with portfolio landlords are significant. These are cases that are not going to fit smoothly through a ‘sausage machine’ and it may well be that such lenders leave this market to the specialists who can operate more effectively in this way. Indeed, it will be interesting to hear the views of advisers post-30 September about how the supply of mortgages for such clients has been impacted by these lending decisions.
The other point to raise alongside a potential drop in lending supply, is around the level of complexity and the ability of advisers to compare the loans on offer from different lenders. Let’s make no bones about it, the workload for advisers is only going to grow; indeed, just making sure you have a working knowledge of the way various lenders approach portfolio clients is going to take some time to bed in.
After all, this is not just about the mortgage the client is currently applying for – it’s also about all other loans in the background, whether they’re with the same lender or elsewhere, whether they are deemed to be affordable, whether they are properties which are currently let out, whether the client has a business plan and a statement of assets and liabilities, whether the client’s personal income can be used in the lending calculation, not forgetting of course what type of taxpayer the client is, and of course the various rental calculations and ICRs which differ greatly across each lender and can be determined by the type of taxpayer they are.
And this is without even touching on the individual, specific to each lender, requirements that will come out in the wash as each case goes through the process. I suspect we are in for a significant and challenging bedding-in period; one in which there is likely to be a lot of teething problems and one in which advisers have to sing much louder for their supper in order to get a case completed. Which just so happens to be part of the reason why we’ve been calling for lenders to up their buy-to-let procuration fees in order to recognise the greater work involved.
However, help is at hand – we’ve produced a couple of documents that will outline all panel members’ portfolio landlord requirements (as they are published) and also ICR/rental calculations, which should make comparison between them easier. Plus, let’s not forget that currently the competition in the buy-to-let sector – rates continue to fall according to recent research by Moneyfacts – means that clients can secure a highly competitive rate, and portfolio landlords might also be very grateful if you can complete their case before the changes are introduced. There is not much time left but it can be done yet, at the same time, advisers should be availing themselves of the detail coming out of lenders – these are significant changes and will once again shift the road ahead for all buy-to-let stakeholders.