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Buy-to-let ICR and affordability checks denting broker business

  • 28/06/2017
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Buy-to-let ICR and affordability checks denting broker business
Mortgage Solutions has polled brokers on how Interest Coverage Ratios (ICR) and affordability tests are affecting their buy-to-let business.

More than half said there had been a noticeable decline in the amount of business they can place, while a paltry 5% reported seeing no effect as yet.

David Shepherd, managing director of Perception Finance, said the market had seen a “serious downturn” over the past year, with much of the business that has gone through being on five-year fixed rates.

‘flight to longer-term fixes’

He continued: “The flight to longer-term fixes has been a consequence of the PRA rules saying that lenders have to stress test much harder for rates that are shorter that this, so we almost have a situation where regulations are leading the market – a move away from principles-based regulation.”

Jane Simpson, managing director of TBMC, said that her firm had seen a significant increase in the number of brokers turning to TBMC for help placing cases, which she put down to the sheer number of different rental calculations employed by different lenders which makes life harder for those brokers who only do the occasional buy-to-let case.

She continued: “What’s happened is the vanilla stuff has gone into the complicated pot now. We can place the deals, but it does now involve more work and means the client perhaps might not have got the same sort of rate as they might have done historically. Whereas perhaps enquiries in the past were rate driven, now it’s more focused on how much they can borrow.”

Chris Lloyd, associate director at Enness Private Clients, said that while the changes have led to a decline in business, there are still a number of ways to get around them and help clients.

He said: “We are seeing more clients go for a fixed rate as there is more lenient stress testing, or going down the limited company route which allows for more borrowing. There is still a market for buy-to-let, it has just been restricted a bit. And it has ensured there is even more of a need for brokers – borrowers really have to go through advisers now.”

A question of location

Around a third of brokers reported that the impact of ICR and affordability tests were very much location dependent, with London and the South East particularly affected.

Shepherd, of Perception Finance, said: “In other areas of the UK we still see that the new rental stress testing can work at higher LTVs, but this also can be a concern as some people may consider buying properties in areas they do not know that well which I would say is also not a good consumer outcome.”

The new normal?

Simpson said she expected to see tweaks continue on just how lenders approach stress testing, noting that lenders took a particularly cautious approach at the turn of the year but had adapted over time.

She continued: “Lenders are clearly looking for ways to help landlords while still adhering to the guidelines, but this will be the new normal. Come October with the new underwriting stance, there will be another layer of complexity added to it as well. There are lots more variables to consider now.”

Shepherd said he thought there will be no end to this situation anytime soon, adding: “We seemingly have a government and regulators who want to control and maybe reduce the private rental sector but this could be a double edged sword as without affordable housing this could lead to more people needing local authority rental properties and there is not the supply of housing for that either.”


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