Lloyds buy-to-let arm plays down MMR ‘gaming’

In the latest FTAdviser video, Phil Rickards, head of Lloyds Banking Group’s buy-to-let lending arm BM Solutions, plays down speculation of potential ‘gaming’ of new mortgage lending rules and argues changes to affordability criteria by lenders was simply a case of “business as usual”.

Speaking to FTAdviser’s Emma Ann Hughes, Mr Rickards discusses his firms U-turn in April on allowing first-time buyers to take out buy-to-let loans, a policy change that was eventually rescinded on the basis of concerns over potential rule breaches.

However, while this echoes concerns of ‘gaming’ by using buy-to-let loans, which are not regulated by the Financial Conduct Authority, to avoid tough new affordability checks, Mr Rickards hints the lender was not concerned over deliberate attempts to circumvent regulation.

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He further points to changes last year to allow “DSS and student” applications for the first time and to strengthen landlord stress tests against future interest rate rises, as evidence of a constant review of criteria that is “day to day” for mortgage lenders and “business as usual”.

He says: “There has been a lot of talk, across the mortgage industry in general, about the potential misuse of buy-to-let.

“We took a decision, quite some time ago, to change our criteria, to allow first-time buyers onto a buy-to-let mortgage application for the first time as long as they were accompanied by a current UK homeowner.

“It took us some time to bring that change to market and in the mean time we had a review of our policy, which highlighted a concern that the first-time buyer could remain in the property for residential purposes.

“The change was purely as simple as that. We want to make sure we continue to lend responsibly and our decision to back out of that change was, we felt a really prudent decision and one that gives our business longevity for the future.”

FTAdviser has previously reported on evidence of brokers being removed from mortgage lender panels for deliberately submitting buy-to-let applications for residential mortgage clients, to avoid new MMR affordability checks.

Under new rules that came into force at the end of April, lenders must undertake tough affordability assessments for all mortgage sales, the vast majority of which will now be classified as advised sales.

The checks must include “at a minimum” a thorough income check of both “committed and essential basic expenditure”, with some lenders demanding information on everything from shopping bills to future family plans.

During the interview, Mr Rickards also discussed the problems the lender had with service levels in 2013 and revealed hopes BM Solutions is now back on track for its tenth consecutive Financial Adviser’s Five Star Service Award.

He said: “We did have some service issues last year. It was a result of our ongoing commitment to the buy-to-let market. We will write around one in four new buy-to-let mortgage applications this year and we did so last year.

“It was also around that control framework. We had to introduce some new controls to our process, which put additional strain on the resources and therefore we had an issue with our service. We have worked really hard to bring that back into scope and normal service is definitely resumed.