PRA rules blamed for penalising landlords with 4 or more BTLs

PRA rules blamed for penalising landlords with 4 or more BTLs

8:05 AM, 26th April 2018, About 6 years ago 4

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The Bank of England’s Prudential Regulation Authority (PRA) rules introduced at the end of September 2017 are having a significant impact on the buy-to-let mortgage market according to Paragon’s latest PRS Trends research, based on interviews with 203 experienced landlords in Q1 2018.

The new rules comprise the second phase of the PRA’s buy-to-let underwriting standards and focus on ensuring that all lenders apply more detailed underwriting principles when evaluating portfolio business from landlords with four or more mortgaged properties.

  • Fewer lenders offer support to portfolio landlords
  • Increase in documentation requirements and application processing times
  • 30% of landlords point to a reduction in loan-to-value (LTV) ratios

Paragon’s research found that almost half (46%) of portfolio landlords who had submitted a mortgage application since the introduction of the new rules reported a reduction in the number of lenders available to choose from. This contrasts with non-portfolio landlords, where a majority (67%) said that there had been no change in lender choice.

However, almost all landlords reported an increase in documentation requirements across the market, with eight out of ten (80%) saying documentation requirements had increased and seven out of ten (70%) saying they had increased a lot.

Similarly, 80% of all landlords noticed an increase in lenders’ mortgage processing times. However, more than half (54%) of landlords with larger portfolios said that processing times had increased by a lot compared with just one third (33%) of smaller scale landlords.

Three out of ten landlords (30%) said loan to value ratios on offer were also lower than before.

John Heron, Managing Director of Mortgages at Paragon said:

“The more detailed underwriting required on larger portfolios makes it more difficult for mainstream mortgage lenders to compete successfully for the full spectrum of professional landlord business. As a result, we’re seeing a polarisation in the market, with specialist lenders playing to their strengths, adding product features that enhance value for larger scale landlords and increasing their share of more complex, portfolio business.”

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Dr Rosalind Beck

8:59 AM, 26th April 2018, About 6 years ago

I think that the potentially trickiest part is the rental valuation. With houses in poor areas where the landlord has kept the rents lower than market value - often as a favour to a long-term tenant who may be struggling financially - they then may have to come up with some lump sums to be able to remortgage. Landlords without savings could find this the sticking point. The only solution is to keep raising rents incrementally in such areas so that one is then in a position to remortgage without adding in extra funds.

NW Landlord

9:22 AM, 26th April 2018, About 6 years ago

I am having a nightmare due to this 7 months and counting to complete two cash purchase remortgages with fleet absolute joke and it has put the final nail in the coffin for us buying anymore buy to let’s. Just another sneaky policy to destroy the PRS the government simply don’t want us anymore and are doing everything to drive us out and to be fair it’s working because we have had enough.

Howard Reuben Cert CII (MP) CeRER

10:20 AM, 28th April 2018, About 6 years ago

A perspective from a BTL mortgage broker who has been doing this job for over 25 years now ....... OMG, it's a different world now! The new PRA GUIDELINES (not specific set of legislative rules) are being interpreted by different lenders in different ways. For example - what is a 'portfolio landlord'? Some say with 4 or more BTL properties. Some say with 4 or more BTL MORTGAGED properties. So, the latter is that if someone has 3 BTL mortgaged and 103 unencumbered, they are not being dragged through the new portfolio landlord specialist underwriting processes, whereas the former example landlords are!

Huge additional amount of paperwork, much slowed down processes, more and subsequent questions now being asked during the process (not just Fleet, but many others too) and of course the extra intrusive scrutiny of cashflow, business plans, bank statements etc now as well.
I believe that a BTL mortgage borrower is liable to even further delays and issues if they try and do it themselves, or via a mortgage salesman who is not au fait with the specialist BTL mortgage market as it has now become.
My Team are regularly trained and updated on the numerous lender changes (criteria, calculations, supporting paperwork required etc) and even this week at one of our Company Meetings we had a lender in to present their new wares to us. Now we can also offer even more mortgages for AirBnB style tenancies, 'self-build to rent' mortgages and the very helpful 'top slicing' income uplift too. Ask your normal broker if they know of these quirky propositions and the likely answer is no.
So, to make the new world of BTL mortgages more easy (in the face of the new PRA regime), my suggestion is to work with a specialist BTL Broker. 'Specialist' does not mean expensive, it means knowledgeable and efficient. Both of these factors should help you to process your applications faster and easier than otherwise.


7:08 AM, 1st May 2018, About 6 years ago

"Just another sneaky policy to destroy the PRS the government simply don’t want us anymore"

I think that this is the law of unintended consequence.

I remember reading the thread here on the original consultation paper back in 2015 or so and the overall consensus was that it asked nothing that commercially sound landlords were not doing already.
So if good businesses are being held up, surely it's down to poor interpretation by lenders.

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