PRA's rule change is a pain point for buy-to-let


September's rule change by the Prudential Regulation Authority (PRA) will bring in a host of problems for buy-to-let investors.

According to Louisa Sedgwick, director of sales at Vida Homeloans, brokers were best-placed to help clients who will face increasing complexity and stricter underwriting rules after September.

"The PRA is changing the portfolio landlord rules. From 30 September, there will be a lot more complexity.

Article continues after advert

"If the customer has three properties or is likely to be buying into their fourth buy-to-let property, this is when the new rules kick in.

"For brokers, there will be more complexity; they will have to know their customers a lot more than they perhaps do now and there will be more forms to fill in."

From 1 January this year, buy-to-let lenders regulated by the PRA have had to implement restrictions on lending criteria.

These changes include stricter affordability tests, such as ensuring the interest cover ratio, including the impact of recent tax changes, and a stress test on interest rate rises.

The regulatory burdens on portfolio landlords, which will be implemented at the end of September, will mean lenders have to implement a special underwriting process for landlords with four or more mortgaged BTL properties.

This could make it much harder for some potential borrowers to get funding. 

However, she said brokers were best-placed to offer advice in this market, given the tax changes brought in during successive Budgets creating a greater need for professional advice. 

Ms Sedgwick said: "It is a bit of an over-demand, under-supply scenario for brokers at the moment", especially as there are not that many specialist intermediaries operating in the buy-to-let market. 

Moreover, she said there has been a trend for brokers to look away from the traditional high street lenders when it comes to cases such as complex buy-to-let.

She told FTAdviser: "A lot of customers do not necessarily fit the high-street. 

"With some figures suggesting 15 per cent of the workforce is self-employed, they are unlikely to be walking into a high-street bank because of that."

Moreover, with a rise in county court judgements, people cannot get lending from the high street, which is why she said more clients are going to specialist brokers to get lending from alternative sources. 

Find out more

For more information on complex buy-to-let, read FTAdviser's Guide to Complex Buy-to-Let, which qualifies for 60 minutes' worth of CPD.