What’s maybe more interesting about this is not so much the proposals as outlined in the consultation paper but the cumulative impact that all the further changes will have on buy-to-let lending and the private rental sector in general.
For what it’s worth I’m not sure there’s anything particularly earth-shattering in the PRA proposals. Certainly from our point of view, it’s very hard to argue against underwriting standards which look closely at all aspects of a borrower’s financial situation as well as the collateral, the rental cover, their existing mortgage debt, and everything else you would think most lenders would take into account before making a lending decision.
Essentially it can be boiled down the rather simple lending maxim of, ‘Only lending to those that can afford it’, and I am rather surprised that other lenders operating in this sector would not be following the same common-sense thinking. In a very true sense, buy-to-let lending has come on leaps and bounds since the credit crunch and I think both lenders and landlords are much better prepared now for any similar downturn that might afflict us.
Which is not to say we should be complacent, certainly as competition grows we are already starting to see some fraying around the edges from other lenders when it comes to criteria and underwriting. If these proposals do anything we should hope they give those who are thinking of jumping up the risk curve too quickly, pause for thought about the merits of doing this.
In another area such as clarity around a ‘portfolio landlord’ definition, we can also be welcoming. The PRA appears to be settled on four investment properties and the assumption is that ‘portfolio landlords’ should be facing stricter underwriting standards. I would suggest that any lender worth its salt already has these standards in place for all potential borrowers, not just those who may or may not be defined as a ‘portfolio landlord’ in the future. Again, it’s a common-sense approach but I’m also conscious that, again in competitive times, common sense may be forgotten, ditched, or those running the business may be conveniently unaware of what it constitutes.
Overall, I don’t see anything for responsible buy-to-let lenders to fear from these proposals and, as the PRA points out, the vast majority are already up to speed with these new standards anyway. However, we should all make certain that our standards and processes meet the required levels and that we ensure there are no reasons in the future for further regulatory intervention on a much grander and wide-reaching scale.