The changes focus on more robust underwriting checks for portfolio landlords (borrowers who own more than three mortgaged buy-to-let properties) and have already inspired anxious sentiments from many lenders, brokers and borrowers.
However, beneath the uncertainty that often surrounds any prospect of change, there are key benefits which should not be overlooked.
In a sector that is constantly partnered with risk, I believe the new guidelines are not only necessary to ensure a better standard of business, driven by more responsible lending, but also offer significant benefits to lenders, brokers and landlords alike.
For portfolio landlords, stricter rules on affordability testing will mean borrowers are less likely to be over-exposed and saved the difficulty of being financially compromised through over-expenditure on a new mortgage they are unable to afford.
Rules with backbone
Rigorous processes, combined with a holistic underwriting approach, essentially operate as the spine of the new PRA rules.
The effect is a possible increase in the time it takes for a borrower to apply for a new mortgage, as well as an increase in cost to the lender, and therefore the borrower, for the extra work required. However, this is only likely to be a notable issue for applications made via non-specialist high street lenders.
High street lenders make-up approximately 80% of the market, but may fall short when it comes to an efficient switch to the new rules, as their current processes are not built for such thorough underwriting processes.
New methods must be learnt and staff educated, meaning higher costs and an initially slower turnaround of borrower applications.
Conversely, for specialist lenders, it is simply a matter of business as usual.
The rise of tech innovation also means that processes are becoming more cost-effective and efficient. With some people predicting that high street lenders may even drop portfolio landlord applications from their remit, the market looks bright for specialist lenders, and the brokers they work with, in light of the updated regulations.
For brokers, the PRA guidelines are an opportunity for them to stand out ahead of the competing crowd and potentially strengthen their lender relationships.
It is critical that brokers are up to speed with the latest regulations driving the market so that they can educate their clients. Many brokers are getting ahead of the game by reading up on the finer points of the new rules.
This is key to widening the gap between themselves and others who are relying on lenders to feed them a condensed version of the necessary information.
For borrowers, brokers and lenders the impending PRA changes are likely to cause a few initial issues. The extent to which these cause a logjam and other application difficulties depends on the efficiency of the lender and the relative compatibility of their systems.
Nevertheless, all parties should agree with the common advantage of the new rules, to drive more responsible lending, and so improve the sector.