There have certainly been some bumps along the way and increased demands on everyone in the market.
Buy-to-let applications are taking longer to complete and many occasional landlords have left, but the overall impact of the portfolio lending rules has been muted.
The more professional and specialist landlord markets have also welcomed it, recognising that the regulator has largely been successful in its aims.
And although it appears to have slowed down the buy-to-let market slightly, the already sluggish pace may have inadvertently helped to ease the portfolio transition.
Slowed the process down
Mortgages for Business managing director Steve Olejnik told Specialist Lending Solutions he is positive about where the market sits now but believes there is still some way to go.
“It’s starting to settle down slowly, although it’s clear the tougher underwriting rules have slowed the whole application process down for landlords,” he said.
“Clearly it takes the lenders a few days to analyse and validate the landlord’s portfolio, so that’s added some frustrations, but it’s had the desired effect of making the market more specialist – we’re seeing the amateur landlords disappear.
“We’ve still got some way to go but it’s improving as lenders get to grips with technology and better ways of checking the data quicker,” he added.
Part of the fear last year was the mass withdrawal of lenders from the sector, but there is now the suggestion that those who had initially stepped away are looking at returning to claim buy-to-let market share.
Large mainstream lenders such as The Mortgage Works, NatWest and Virgin Money have all taken steps into the market and more may be on the way.
“Perversely we’re seeing lenders who said they were not going to be in the portfolio space looking at ways they can,” Olejnik continued.
“The mainstream buy-to-let lenders are obviously seeing their volumes go down as amateur landlords leave, so they are looking to operate in that more specialist space of portfolio, limited companies and houses of multiple occupation (HMOs).”
Requirements for landlords to produce extensive cash flow forecasts and business plans were one of the main introductions typically seen from many lenders last year.
However, while these may be generally a good thing for business planning, there appears to be a realisation among some lenders that they offer little to support a mortgage application.
“I can write it for the client and it’s not going to add anything for the risk proposition, so some lenders have now wised up that they don’t need forecasts,” said Olejnik.
“Instead with three months’ bank statements we can see how its operating and that gives them a much truer picture.
“Again with business plans, we cover with the lender the client’s strategy for future investment, but a detailed business plan seems a little bit over the top so that’s settling down and a few lenders are coming to terms with it,” he added.
Paragon Bank director of mortgages John Heron noted it has taken the market some time to fully adapt to these new requirements, but that Paragon has been doing plenty of portfolio underwriting for many years.
“Lenders more generally have had to up-skill their underwriters, make sure their systems and processes are fully aligned with requirements for portfolio business and that hasn’t been an easy task by any means for all of them,” he said.
“I think there’s been a lot of progress over the year, the market is now much better prepared, it’s coping better with the requirements of the regulator.
“However it can take longer than it should to pull together the information required to underwrite these more complex cases, but I think lenders, brokers and landlords will continue to improve.”
He also noted that a significant shift has been the increase in activity of larger portfolio landlords and that they are more likely to target specialist properties and structure new holdings in specialist vehicle companies.
“We have seen an uptick in higher margin activity such as houses in multiple occupation (HMOs) and multi-unit blocks,” Heron said.
“Those are trends which will become more deeply embedded going forward and there’s been more specialist lender involvement in the portfolio end of the market.
“It’s interesting how each lender has evolved its own trend in the buy-to-let market along the lines of their willingness or ability to lend at the more complex end of the sector,” he added.
Landlords were unaware
Foundation Home Loans marketing director Jeff Knight agrees that the fear of the change itself turned out to be far worse than the reality.
However, the lender has responded to changes in the market throughout the year and working under the new regime.
“Feedback from brokers is that some clients were unaware about what the changes really meant to the application process,” he told Specialist Lending Solutions.
“This has meant it takes longer gathering all the necessary paperwork and documentation together, before submitting the application to a lender. So as expected, there has been an element of adaptation to the change.”
As a result, Foundation is one of those lenders which has sought to minimise the burden where possible.
“We have ensured we keep things simple for the broker and do not ask for business plans or asset and liability statements,” Knight continued.
“We have also introduced a process for helping brokers, where the portfolio is over 10 properties, with the completion of the portfolio spreadsheet.”
And the lender is looking at technology solutions as well to help with applications and data sharing, having begun investing in direct links with distributors.
Overall, Knight believes the portfolio end of the buy-to-let sector may have been strengthened with the changes and increased specialisation.
“Our research found that 19% of portfolio landlords intend to remain in the buy-to-let market indefinitely and on average, portfolio landlords expect to remain in the market for 15 years, compared to ten years for their non-portfolio counterparts,” he added.
The spirit of co-operation between lenders and brokers to support landlords has been another emerging positive.
Buy to Let Club managing director Ying Tan highlighted this point.
“Naturally there was some disruption when the new rules first came into play, as the changes bedded in, but we now have the new norm and as such things have settled down,” he said.
“One reason for this is that lenders and brokers across the sector have worked together to ensure the application process goes as smoothly as possible.
“Brokers are ensuring their clients have the necessary information upfront so that there are no delays further down the line when more documentation is required,” he added.
Of course the spectre of change continues to hang over the buy-to-let market, with mortgage interest tax relief cuts still yet to fully hit home and the potential for further stamp duty hikes.
However it appears in this instance, the market has responded well.
“Yes, landlords have had to provide more information when applying for a mortgage and as such the process can be slightly more time-consuming but, as they have done before on many occasions, landlords have adapted to the new lending rules and are more prepared for what they’ll need to provide,” Tan added.