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PRA portfolio rules risk choking out competition in BTL sector, experts warn

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  • 01/02/2017
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Industry experts have expressed concerns that prudential rules imposed on buy-to-let lenders from 30 September could dampen the availability of loans to portfolio landlords and push pricing up.

Commentators believe the rules, which will require all lenders to use additional affordability tests on landlords with a portfolio containing four or more mortgaged properties, will force the bigger, more mainstream lenders to shy away from this type of lending.

Specialist lenders have been touted as being expected to step up to the mark and provide options for portfolio landlords, but Ying Tan, managing director of the Buy to Let Club, said it was “inevitable” that pricing would have to rise as the specialist players are forced to fill the potential hole left by high street lenders.

“The challenge is that if the bigger players move out, can the specialist lenders, which are plentiful now but still relatively small, fill the gap?” Tan asked.

“Pricing may be forced to go up to cope with that demand. I have been at several events recently where leaders from various specialist lenders who plan to operate in the portfolio landlord space say that the increase in hours spent underwriting cases is clearly going to be reflected in the pricing.”

David Whittaker, CEO of Mortgages for Business, said it was crucial that lenders refine their processes as service would play a big part when brokers choose who to place business with post-30 September.

“The market will logjam for a short period of time as everyone sorts their act out. Brokers will be quite ruthless at moving away from those who don’t get their processes right,” he said.

Whittaker pointed out that there were no hard and fast rules in how lenders undertook the specialist underwriting approach, but that lenders had no ‘get out of jail’ card in avoiding a proper assessment of new or existing customers.

“The lender has to look at the landlord’s entire exposure under affordability, regardless of where those mortgages are otherwise domiciled; to what level they do that is entirely up to them to justify to the regulator. Bear in mind that most lenders have had what I call a light touch regime in terms of validating landlord data historically.”

The stance taken on portfolio lending among mainstream lenders is currently unclear. In response to requests by Mortgage Solutions, both Royal Bank of Scotland and The Mortgage Works said they have no plans to change their position after 30 September.

Nationwide’s TMW currently has an exposure loan limit of £5m for all buy-to-let mortgages advanced, with no limit on the amount of properties held with other lenders. For Natwest it’s a maximum of four properties across all lenders including Natwest.

Coventry Building Society will accept a maximum of three properties per household and 10 across all lenders. It plans to continue lending to portfolio landlords after the second tranche of PRA rules come into effect.

Alan Cleary, managing director of Precise Mortgages, which will continue to lend to portfolio landlords, said a reluctance from the bigger lenders to play in this space would undoubtedly restrict product choice for borrowers.

He said: “Portfolio landlords make up around half of the buy-to-let market and when you look at our lending the average number of properties per borrower is eight. We expect more lenders to come out and say they don’t plan to operate in the portfolio space so you could see competition dampened.

“Are the bigger lenders going to be operating in this space? Because if they are, there will be no change in the availability of deals available to landlords.”

Portfolio lending: Lenders’ current and future stance

BM Solutions

“Three property limit with BM and no limit overall. There are no immediate plans to change the limit. We have invested time and resource to address the PRA changes and are pleased with our progress. We’ll continue to monitor the market and regularly review our policies to ensure we are meeting the needs of our customers.”

TMW

“Our lending limits are based on total exposure across the Nationwide Group and are capped at a total of £5m. There are no current plans to change this. There is no maximum number of properties outside of Nationwide currently, and we do not anticipate any change to that after 30 September.”

Santander

“We accept maximum of 5 Santander mortgages with maximum of 7 overall and we are reviewing our position for Sept, no decisions have been made at this point.”

RBS/Natwest

“For NWIS [Natwest Intermediary Solutions] it’s a maximum of 4 properties. It doesn’t matter whether these are mortgaged with us or other lenders. We aren’t planning on changing our position on 1 October.”

Barclays

“The maximum number of mortgaged BTL properties held must not exceed six in total across all lenders, including Barclays. For BTL cases a full income affordability check will be carried out in all circumstances (except rate switch only cases). Our policy is currently under review.”

Virgin Money

“We will accept up to 4 buy-to-let properties with Virgin Money and 11 in total across all lenders. We can’t comment on any potential future changes.”

Coventry for Intermediaries

“The maximum number of rental properties a household can have in mortgage with us is three in total. The maximum number of rental properties a household can have in mortgage with all lenders is ten.

“We will continue to lend to portfolio landlords post 30 September, and will have systems in place to ensure that new PRA requirements are met.”

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