|
It is hard to prepare for the upcoming PRA changes when we still do not know how lenders will implement them
On 30 September, the PRA expects lenders to adopt a ‘specialist’ underwriting process when assessing a portfolio landlord’s borrowing suitability. It requires them to be more diligent because of the complexity of the borrower’s circumstances, namely:
Last December, I wrote in this column that most buy-to-let lenders had said little publicly on how they intended to implement this. Worryingly, this remains the case despite the fact the PRA requires them to have a written underwriting policy that differentiates between BTL lending and lending to portfolio landlords from 30 September.
Not only must criteria be tightened but staff must be trained, systems upgraded, criteria published, and brokers, borrowers and the like informed. Lenders may be working on it but, with five months to go, the silence is deafening.
Even if specialist BTL lenders have the processes in place already I doubt they have been differentiating specifically between portfolio and non-portfolio landlords when assessing affordability. Many more questions will have to be asked of all borrowers, even those seeking a simple, like-for-like remortgage.
Clearly, mainstream BTL lenders have a mountain to climb if they are to be ready for the new rules. Even if some decide to lend only to landlords below the four-mortgage threshold, they must still determine how to handle customers who are already in the portfolio category.
They must also decide whether to accept limited companies as borrowing vehicles because to enter this market will take much preparation. Not to enter, however, could result in lenders having to lower their lending targets. This, of course, would affect specialist lenders, which might gain a big uptick in business – a good problem to have but with its own volume and serviceability challenges.
As we all know, the new regulations, coupled with the recent fiscal changes, were designed to impede the disproportionate growth of the BTL market. It is definitely working and since the news of a snap general election we have experienced a further, if slight, lull in enquiries from residential landlords.
If this lessening of pace is happening across the market, it could be a good opportunity for lenders to make public their intentions for 30 September. By default, we must follow the lenders’ lead, but it is hard to make any level of preparedness when we do not know ourselves what to prepare for.
David Whittaker is chief executive of Mortgages for Business
