Business plans add ‘unnecessary complexity’ to portfolio lending – Foundation

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  • 06/02/2018
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Business plans add ‘unnecessary complexity’ to portfolio lending – Foundation
Business plans for portfolio landlords add “unnecessary complexity” to the buy-to-let (BTL) mortgage application process and affordability tests can be conducted sufficiently without them, according to Foundation Home Loans.

 

The lender is one of those that, contrary to the Prudential Regulation Authority (PRA) guidelines for portfolio buy-to-let landlords, does not require portfolio landlords to submit a business plan, or asset and liability statements when applying for loans.

As the portfolio lending changes have bedded-in, brokers such as Connect for Intermediaries CEO Liz Syms have acknowledged that lenders making the process as simple and straight forward as possible have been winning more business.

Jeff Knight (pictured), marketing director for Foundation Home Loans, argued that: “From our perspective, we don’t think it adds any value to the underwriting decision.”

He continued: “When it comes to portfolio BTL lending, we believe the simplest solution is to just look at the existing portfolio’s leverage, loan-to-value (LTV) and coverage.”

“We will want to be sure that the landlord would be able to sustain any hikes in interest rates and we can assess that without a business plan,” Knight added.

Instead of asking for business plans, or asset and liability statements, Foundation assesses portfolio details through a spreadsheet uploaded through its portal.

“From this information, and the use of automated valuation models (AVMs) and other background checks, we focus more on the concentration of the portfolio and undertake stress tests at 125% at 5.5%, and ensure that the aggregate portfolio LTV is 75% or less,” said Knight.

 

Flexibility

Foundation designed its portfolio proposition after conducting focus groups with landlords and intermediaries.

“It was clear that both parties were concerned about adding unnecessary complexity to the application process,” said Knight.

“We know other lenders do ask for business plans and use the information accordingly, but our proposition is different,” he continued, “having listened to the needs and concerns from our focus groups, we were able to create a proposition that is both pragmatic and straightforward.”

Indeed, Specialist Lending Solutions has previously reported that lenders are becoming “less rigid” on borderline BTL cases, as providers are becoming more comfortable with the PRA rule changes.

Knight commented: “As the market adapts to these new changes, additional work has been created and we have ensured that we have created a proposition that alleviates the extra hassle that intermediaries are facing.”

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