Buy-to-let 

Regulation restricts buy-to-let mortgage options

Regulation restricts buy-to-let mortgage options

Rules introduced by the Prudential Regulation Authority to strengthen the underwriting of buy-to-let mortgages has restricted product choice, according to research commissioned by Paragon.

The rules, introduced in September 2017, forced lenders to embrace a different underwriting process for landlords that have four or more mortgage buy-to-let properties.

However, Paragon's latest trends report showed that the changes have led to delays in application processing times and an increase in documentation requirements.

John Heron, managing director of mortgages at Paragon, said the increased underwriting burden now required for larger portfolios "makes it more difficult" for lenders competing in the mainstream mortgage market to compete successfully.

He said: "As a result, we are seeing a polarisation in the market, with specialist lenders playing to their strengths, adding product features that enhance value for larger scale landlords and increasing their share of more complex, portfolio business."

The research from Paragon found 46 per cent of portfolio landlords that had submitted a mortgage application since the introduction of the new rules reported a reduction in the number of the lenders from which they could choose from.

However, non-portfolio landlords were largely unaffected, with 67 per cent saying they had witnessed no change in lender choice.

Despite this, 80 per cent of all landlords said they had noticed that documentation requirements had increased, while seven in 10 said the documentation burden had "increased a lot".

A spokesman for the PRA said the Bank of England does not comment on industry surveys of this nature.

Andrew Montlake, a director of intermediary group Coreco, acknowledged that there had been some reduction in choice for the portfolio landlord market.

He said: "There have definitely been consequences of the PRA changes. It takes longer, and it is trickier, to process these applications.

"A lot of the mainstream lenders are not able to play in this market and there has definitely been a restriction of choice."

Mr Montlake believes that the market changes are precisely the effect that the PRA wanted when it introduced the regulations, as part of a wider policy to reduce the amount of buy-to-let activity, but stressed the market may yet see some lenders return.

He said: "It has had the effect that the PRA wanted. As things get a little bit easier, you might see more lenders coming into the market, but I don't think you will see a market like it was, with masses of choice, across the board, for portfolio landlords.

"That is probably the point of the rules."

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