I’m writing this on the day of Donald Trump’s inauguration as the next President of the United States and therefore you’ll forgive me if my mind has turned to the uncertainty that particular situation generates. There’s little point in trying to second-guess what a Trump presidency will actually do but my hope is that those who are predicting the end of life as we know it, are some way short of the truth.
Uncertainty has been a by-word for much of what has come to pass in the last 12 months and, I presume, as mortgage advisers you’ve been hoping for a bit more stability and certainty. However, in buy-to-let circles, judging by some of the feedback I’ve seen from advisers in these days post-the PRA changes to lender’s rental income calculations, the level of certainty has actually decreased rather than risen.
Undoubtedly, with a great many lenders and the criteria they are adopting, there has been an increase in complexity. I’m not surprised that advisers are having difficulty working their way through some lender’s requirements and how they can actually tie this in to a meaningful comparison for their clients – are they including a borrower’s income, how much income, how does that work its way into the lender’s decision, how does it compare to another lender? All these questions require information and understanding, and again I’m not surprised to see advisers unimpressed with the level of work they are having to undertake in order to get to the bottom of what certain lenders require.
Now, don’t get me wrong, we have been vocal in terms of our support for the introduction of the PRA’s requirements in this area – we’ve always advocated a lending proposition that only lends to those borrowers that can afford it, and these underwriting changes from the PRA certainly ensure that other lenders are brought up to these standards. Every single lender operating in the buy-to-let sector has a duty to lend responsibility, to make sure they are covering off all aspects of a deal be it the borrower themselves and their financial situation, the property, its state, it’s location, its attractiveness to tenants, the rent it can produce, and everything else that goes with common sense lending.
However, and here’s the rub for many advisers at the moment, it’s become clear that getting to grips with how certain lenders have made the transition to the new rules and those greater responsibilities, is (for some) a painfully awkward task. I’ve heard advisers say, “We knew it was going to be slightly more complicated, but nothing like this,” and it’s at this point they normally follow up by saying that those specialist lenders, like ourselves, who’ve been able to maintain our underwriting standards and ensure we are simple to deal with, are certainly going to benefit and be their first port-of-call.
Let’s also not forget that simple processes and providing certainty and clarity to advisers about what you offer, how you offer it, etc, does not have to be incompatible with responsible lending. Far from it, I would suspect for example that our underwriting processes are some of the most robust (if not the most) in the buy-to-let marketplace. The fact that in two years of lending we’ve yet to have any arrears will probably testify to that – in that respect, it is vitally important that we have a screening process that models potential borrower’s propensity to pay and, whether based on an extensive analysis of their position, they can withstand financial shocks such as an increase in taxation or rental void periods.
This being built into your underwriting process doesn’t mean you can’t offer advisers a simple process through which they can work, nor does it mean you can’t provide clear and quick certainty about whether their client is suitable for a loan. Indeed, working this way gives advisers a great deal of confidence about the quality of their client because it tells them that if they’ve passed through our process then they are of a certain type. I think that’s very important for advisers especially when they’re looking for such business and they want to ensure the maintenance of strong relationships with both clients and their lender/provider partners.
In today’s buy-to-let market it probably pays to be boringly simple because those that are constantly shifting and changing make the broker’s life incredibly difficult. That type of certainty is certainly required in a world which looks likely to be lacking in that quality for some time to come, and we have no intention of veering of this path anytime soon.
Bob Young is chief executive officer of Fleet Mortgages
