Paul Welch, CEO of largemortgageloans.com, believes that the PRA’s changes to lending regulations – which will come into effect on 30 September – will have a significant impact on the whole of the UK property market and force buy-to-let investors to rely on private banks and niche lending offerings.
Welch argues the new regulations will have a significant impact on the industry, specifically in the million plus lending sector. “High street banks have been pushing into the large lending space over the past few years, alongside private banks and building societies,” he says.
“Therefore, there are more options than ever before to secure large sums and buy-to-let investors can take a creative approach to complex lending structures.”
Welch thinks that “bespoke solutions, creative thinking and niche lending” are what is needed. “Private banks can create unique solutions for large property portfolios,” says Welch.
“Some building societies will create individual solutions and pricing at lending levels over £3 million. The opportunities are there for the taking; they just need to be sought out. For many buy-to-let investors it will be business as usual if they work with a broker who has an appropriate network and bespoke approach.”
New PRA regulations coming into effect on 30 September will affect all landlords owning more than four properties. Portfolio landlords will have to provide full details of their assets and liabilities, as well as all other mortgages on their various properties. They will also be required by some lenders to set out a business plan to secure borrowing and – in many cases – loan to value ratios will slide well below previous highs of 85%. Lenders will be adopting a special underwriting process to carry though these applications and ensure borrowers are not over-exposed to risk.
The latest regulations follow other reforms, including the erosion of tax relief on mortgage interest and changes to stamp duty regulations, all of which have had a significant impact on buy-to-let investors.
“The new regulations will have the desired effect of making it harder to rapidly build and grow large buy-to-let portfolios” says Welch, who established largemortgageloans.com in 2006 to fund complex lending structures internationally across all asset classes – not only on real estate but other high value assets such as jets, yachts and art.
Welch is optimistic that with these new challenges will come incredible opportunities. “We’ve already asking prices on homes in London take the biggest annual fall so far this decade and the market is seeing serious readjustment. It’s likely these regulations, alongside the uncertainty of Brexit, will continue the significant and long-lasting impact on house prices over the next five to 10 years. That will provide opportunities in the market for first time buyers to get a foot on the ladder. For buy-to-let investors with an eye to the long-term, it will provide opportunities to snap up property at price levels we haven’t seen in several years.”
According to research from the National Landlord Association, 43% of landlords report the process of obtaining finance has become more difficult since the beginning of 2017. 53% of landlords said they have been required to provide additional evidence to support recent mortgage applications, including their tax returns, cash flow forecasts and business plans.
A number of the most well-known names in lending have begun to publish their buy-to-let lending criteria in preparation for the changes. “Borrowing is going to slow down at an incredible rate,” says Welch, “but that should add to competition and keep rates low for the foreseeable future as the market remains competitive.”
Welch adds, “Some regulatory elements will be more challenging and there may be some rationalisation, but that will lead to new beginnings, seismic change in the property market and fresh thinking.”