Uncertainty must feel like a normal part of the profession for those who are making their living in the buy-to-let market at present. Indeed, ever since the government decided that private landlords were apparently to blame for all the evils of the residential property market – specifically keeping innocent, potential first-time buyers out of their homes – there has been a concerted effort made to curb landlord activity and, if it also brings in considerable taxation revenue at the same time, then so be it.
These full frontal interventions in the buy-to-let market started with the changes to stamp duty for purchases of additional property, but have also introduced underwriting changes for lenders, and at the end of this month, will introduce further measures which cover ‘portfolio landlords’.
For those who have had their heads in the sand, portfolio landlords are now defined as those who have ‘four or more distinct, mortgaged buy-to-let properties either together, separately or in aggregate’ which means that those who might simply define themselves as amateurs previously may now be covered off by the new rules. Most stakeholders were lobbying for a definition where properties numbered double figures however this was not to be.
Essentially, the rules now mean that lenders have to collate much more information about a borrower’s entire property portfolio before lending to them; it’s not just the case that they take the property being mortgaged into account, but instead have to ask for information across the whole lot.
Understandably, as lenders have made their anticipated changes public, this has brought a sense of dread about the increased level of work involved for advisers and the fact that (for the most part) they are not going to be paid a single penny extra by the lenders for submitting such cases. This may change – one lender has come out and said it will pay more – but there’s also a feeling amongst practitioners that some lenders are publicly committing to continuing with their portfolio lending but are actually not especially keen on writing actual business.
It remains to be seen whether this is truly the case but you have to consider that a number of the big, mainstream buy-to-let lenders have never been set up to deal with professional/portfolio landlords anyway. Their propositions have mostly been aimed at the vanilla, amateur landlords with one or two properties being used to fund retirements. These lenders have tended to have slick, technology-focused underwriting processes not designed to be pored over by an underwriting team and certainly not designed to cope with an influx of new information which covers the potential borrowers’ whole portfolio.
Given this situation, we have the potential for a significant exodus from the sector – not only might we see advisers choosing not to work on portfolio landlord cases because the income simply does not cover the resource or time required, but we might also see lenders – privately not publicly – deciding to step back from portfolio lending and leaving the market to the specialists, a number of which do not have to introduce the new rules because they are not PRA-regulated.
This might seem fine in theory, but if some of the bigger buy-to-let lenders do seek market value and share elsewhere, this could leave the private, portfolio landlords with an issue in terms of accessing the finance they need. In that scenario, then we have to wonder whether bridging lenders will step into the void and step up to the plate in being able to offer loans to what are likely to be experienced landlords across the UK.
The ability to access short-term finance for investment properties, whether it be purchase/refinance, for capital raising or renovation, is likely to be most welcome, especially if lenders are making borrowers jump through numerous hoops in order to get a mortgage, and if the information requirements that many in the buy-to-let market are expecting actually do have to be met. There are a lot of nervous advisers in the sector about their ability to meet short-term deadlines for portfolio landlords – indeed, many warned landlords earlier in the year to get their finance sorted before the 30th September introduction date because of the anticipated problems after this.
The positives for advisers and clients is that if a short-term bridging loan does appear to be a better option then there are a growing number of products available. Indeed, one suspects that if the PRA underwriting changes do play out in a particularly negative manner then more bridging lenders will be looking to make their mark in the sector. At the moment, with LTVs up to 75% (up to 100% of the purchase price if the client uses additional security) and rates south of 5%, there could be a short-term option out there for such clients. And if you’re not confident or a specialist in the bridging sector and want us to do the work for you and receive the same income, then our knowledge and relationships can make it work for you in double-quick time.
So, as we motor towards the end of the month, we are likely to see a greater level of uncertainty and nervousness in the buy-to-let sector about how things might play out, particularly in the immediate months after the PRA rules are brought in. Knowing that there is a strong buy-to-let bridging opportunity available though should mean you have another string to your bow if those anticipated delays do not make it worth either you, or your client’s, while.
Myles Williams is CEO at First 4 Bridging