I believe the guidelines are a good thing as a landlord with four or more properties is effectively running a business and should be treated as such.
However, the way the rules have been interpreted by different lenders has made it harder for brokers to understand what is required.
The way brokers have traditionally placed buy to let cases is no longer appropriate for portfolio landlords.
Lenders each have their own interpretation of the guidelines and have applied stress tests in different ways, with different documentation requirements, which means that sourcing systems are not equipped to provide the full picture.
We see a lot of cases where a broker has picked a mortgage from the top of a sourcing system and been rejected because the portfolio does not meet the lender’s criteria.
Brokers also need to get out of the habit of looking at a property in isolation without considering the bigger picture.
Consider the whole portfolio
In some ways this is understandable – there are now more requirements at the front end of an application, lenders do not share a consistent approach, and many brokers just don’t have the time.
My advice is to obtain a portfolio document upfront, detailing the properties in a portfolio, mortgage and repayment information and rental income.
This is a bare minimum before you start thinking about placing a case for a portfolio landlord.
The next step is then understanding lender criteria and the options available.
If a case can be presented to a lender with all of the minimum packaging requirements, it can cut delays, and this makes the process less onerous for brokers.
Of course, for those brokers who still find they don’t have the time, there is also the option to refer business to a specialist distributor in exchange for a share of the proc fee.
The PRA guidelines have made the process for portfolio landlords more complicated, but they have also presented some opportunities.
85% LTV unlikely
If you do not already have a referral relationship with a property tax specialist, you should look into this as soon as possible.
Not only is it best advice to point your clients in the direction of a qualified specialist, but you could also benefit from referrals being made to your business.
Reviewing a landlord’s portfolio as a whole can also present more imaginative opportunities for raising finance.
We still receive enquiries looking for 85% loan to value (LTV), which is unlikely with current stress test requirements.
But by looking at the overall portfolio there could be the opportunity to raise finance elsewhere on properties at lower LTVs if this is the appropriate solution for the client.
Other than portfolio landlord enquiries, holiday lets have been one of the biggest areas of referrals recently.
There is still opportunity for more products in this area that can value a property on the income generated from short term lets rather than an assured shorthold tenancy (AST), but there are options for landlords in this space.
We have also seen more landlords looking at multi-units and houses in multiple occupation (HMOs) for the first time as a way of improving rental yields within the portfolio.