Speaking at the National Association of Commercial Finance Brokers (NACFB) expo in Birmingham, Johnson (pictured) said the Prudential Regulation Authority’s (PRA) decision to consult on tougher underwriting standards for the industry had been based on information fed to it directly from the banks.
The PRA wants to see landlords with four or more properties in their portfolio subjected to a full affordability assessment with an increase in rental coverage calculations set at a minimum level of 5.5% at 145%.
“One of the reasons we are where we are is that all banks have to provide their business plans through to the regulator and they identify what type of segment we are going to lend to, what we think we are going to lend, what sort of loan-to-values and what sort of pricing,” said Johnson.
“Add that all up and what the regulator sees is four times the market size.”
“Funnily enough the regulator thinks the only way that this [market size] is going to be achieved is if the lenders are going to drift on risk appetite.”
Johnson warned that the regulator would also be concerned to see a fall in pricing to achieve more volume in the buy-to-let market, as this would mean lenders have less ability to absorb losses and therefore be less profitable.
He added: “In many ways the industry has created some of this nervousness and it is incumbent on all of us to reflect on that.”
