Buy-to-let borrowers burdened by PRA rule changes


Buy-to-let investors are finding it tougher to get funding from traditional lenders, thanks to more rigid underwriting criteria brought in by the Prudential Regulation Authority.

Liz Syms, chief executive of Connect for Intermediaries, commented that landlords are now being asked for lots of additional paperwork on everything including business plans, asset and liability statements and cashflow analysis.

She said: "Where do I start [with the changes put in place by the Prudential Regulation Authority]? There are a lot of changes, many of which have already been implemented in January which advisers and their clients have got used to.

"But more changes have come into place for the beginning of October, in terms of portfolio underwriting, so any landlord with four or more buy-to-let properties will have to be underwritten by lenders using what we call specialist underwriting."

At the end of September, the PRA brought in tough new portfolio landlord rules. The rules mean lenders have to implement a special underwriting process for landlords with four or more mortgaged buy-to-let properties (or three mortgaged buy-to-let properties with a fourth buy-to-let mortgage in the application stage).

Ms Syms commented: "This means lenders do not just have to look at the subject property but they must also look at the client's existing portfolio, and make a judgement based on that and on all of the risks going forward, because of all the other changes in the marketplaces."

Fellow panellist Vishal Pandya, operations manager for the Society of Mortgage Professionals, said he believed "advisers are coping, as they always do". 

He told FTAdviser: "As lenders get used to these new rules and tweak their policies, advisers need to make sure they are keeping on top of it. Advisers need to look at their business model and, if they are providing buy-to-let advice to consumers, they will need to make sure they are up-to-date with the market and can give the right advice in an appropriate way."

Ms Syms added the technology employed by the high street lenders has also presented a challenge in some cases for potential borrowers.

"Some mainstream lenders have archaic systems which are very rigid. In the past, it was very much a 'computer says yes or no' situation. They now have to take those case off the conveyor belt, and then have an underwriter look at all these cases in more detail.

"This comes with challenges, so it is understandable that mainstream lenders have not been able to adapt as fully as some specialist lenders who have always been used to more of a manual underwriting process."

When it comes to interest rate rises, Mr Pandya said it could have an effect, but it would be minimal. He explained: "A rate rise may deter some new landlords entering the market, or mean some existing ones decide not to expand their portfolio, but we do not feel rates will rise that quickly and therefore will not have that much of an effect.