In a recent poll on Mortgage Solutions, brokers were asked how many more of their potential buy-to-let clients they expected to turn down this year as a result of the stricter underwriting requirements from the Prudential Regulation Authority (PRA). While a quarter said not many more, as many lenders have made their changes already, 16% said more than 30% of their clients would be left disappointed, while a further 17% expected to turn down more than half of potential buy-to-let clients in 2017.
Since 1st January, lenders have been obliged to stress test borrowers at a pay rate of 5.5%, though a number of lenders implemented the changes last year.
A reeling market
David Sheppard, managing director of Perception Finance, (pictured) said he was “not in the slightest surprised” that many brokers thought the new rules would significantly dent their clients’ chances of property investment, pointing out that they represented another hit to property investment, which is still reeling from Stamp Duty and tax changes.
He continued: “Admittedly there are still lenders working to a lower rental requirement but it is competition that helps drive the market and if the larger lenders have all had to increase their rental stress testing leaving a handful that have not, then this is hardly conducive to a fully functioning and beneficial mortgage market.”
The limited company opportunity
Chris Lloyd, associate director at Enness Private Clients, said that there was no doubt that the stress testing changes meant that placing buy-to-let business would be more difficult. However, he pointed out that there are still options for the right types of borrower.
He said: “What is becoming more attractive for some investors are five-year fixed rate options, which you can still get with pay rate, meaning you get them a lot cheaper. As you are fixing for a longer period of time, lenders are more relaxed about what happens if rates start rising.
“It’s sometimes even easier going down the limited company route; some lenders are actively encouraging that now. Brokers really need to understand the difference from a tax point of view, the rates on offer and also the fact you may be able to borrow more this way,” he added.
Last week brokers told Mortgage Solutions that Santander and Hinckley & Rugby Building Society had done a good job in supporting brokers with the changes, as well as warning that they would play ‘havoc’ with sourcing systems.
Keep on fighting
Sheppard suggested that the industry should not give up on fighting the changes made to the buy-to-let market of late.
He said: “I think more needs to be done by lenders and the various landlord bodies to lobby the Government and specifically the Treasury to consider reversing some of the changes where the remit allows. How the Government can say that having a low tax environment encourages business and then have a different set of rules for this is beyond me.”
However, Lloyd was rather more positive, concluding: “There is still a buy-to-let market, but it has definitely got harder for the standard individual.”