The PRA has proposed that portfolio landlords, classified as having four or more properties, should be subject to ‘specialised’ underwriting which looks at the total cost of running a property.
Without concrete guidance on what these assessments should look like, varied approaches to assessing landlords’ affordability are expected to spring up from lender to lender.
Colin Bell (pictured), managing director of commercial mortgages, Hampshire Trust Bank, said: “These changes will play into the hands of intermediaries. If the proposals go ahead an extra layer of complexity will be added to lenders’ criteria.
He added: “The paper is suggesting that if lenders lend to specialist landlords they can develop specialist affordability checks which look at their overall picture. Without specific guidance, lenders will interpret the rule in different ways.”
Bell said it was likely there would be different view points on considering surplus income, the landlord’s wider portfolio, void periods and maintenance costs.
“Brokers will get to know these nuances such as which lenders will favour a client’s particular set of circumstances. This reinforces the need for professional advice when arranging a buy-to-let mortgage,” he added.
At The Buy To Let Market Forum in Birmingham yesterday, held by sister title Mortgage Solutions, brokers were urged to seize the opportunities arising from the next wave of regulation to hit the market.
Speakers at the event estimated around 80% of buy-to-let mortgages were already being arranged through intermediaries, but, Phil Rickards, head of BM Solutions, warned brokers should not be complacent about the strength of their position in the market.
“It’s no secret that all lenders are working on their digital proposition which will allow them to offer products directly to the consumer more easily,” Rickards told attendees.
Richard Howes, national key account manager for Santander, told brokers at the event that they should consider charging clients for their advice in the buy-to-let market even if the discussion did not result in a sale, as the market became more complicated.
He said this was the way buy-to-let advisers would differentiate the service they offer, from the robo-advice approach of lenders.
Hampshire Trust’s response to the PRA’s consultation, which closes on 29 June, addresses what it sees as a negative consequence of imposing higher interest coverage ratios (ICR), another proposed change by the PRA. The PRA wants to see a minimum stress test of 2% applied to the product interest rate used in the rental coverage calculation, or 5.5%, whichever is higher.
“This will allow lenders to lend more on what I consider to be higher-risk properties and less on lower-risk properties,” said Bell. “The properties which tend to have higher yields are often higher risk; they may be in poorer areas, they could be HMOs, student accommodation or apartments rather than houses.”
Bell said if the proposed rule on ICRs were passed, landlords would be able to borrow less on low risk, lower yielding properties which applied to many houses in London and the South East.
“This is not a balanced approach to risk,” said Bell.