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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.
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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